GRAIN REPORT
By Dr. Robert Wisner

CORN

Plan to use updated U.S. acreage and crop-condition reports to fine-tune old and new-crop/old-crop marketing plans this summer. Important market indicators to follow in the next several weeks include: 1) USDA’s June 30 planted acreage and grain stocks reports;

2) weekly crop condition reports released on Monday afternoons; and 3) the National Weather Service short-term weather forecasts.

Corn prices will react to the extended weather forecasts at least 3 or 4 days before the forecast period begins. The June 30 reports will determine how sensitive the market may be to any widespread hot, dry weather in July and August.

If farmers have carried out their earlier planting intentions, a normal U.S. yield would produce a crop 800 to 900 million bushels below potential use. That would make summer prices sensitive to extended periods of dry weather and below-normal yield prospects over a sizeable part of the Midwest. However, many analysts believe good planting weather and market strength during April encouraged larger corn plantings than anticipated.

The gap between potential corn production and use is almost certain to widen in the next few years unless farmers plant more corn. That’s due largely to a rapid expansion in corn processing for ethanol. The largest expansion is occurring in Iowa, with plans that may boost the state’s ethanol processing capacity by about 900 million bushels in the next 2 to 3 years. Most states throughout the midsection of the U.S. as well as some in the southern plains and far west also are planning to build ethanol plants. As we went to press, the new-crop corn market appeared to reflect a 25 to 35 cent risk premium to cover the possibility of serious summer drought coupled with expanding demand.

BEANS

Like corn, the soybean market in the next 4 to 6 weeks will take direction from the June 30 USDA reports, weather forecasts and weekly crop condition reports. If trade analysts are correct that farmers have planted fewer soybean acres than previously planned, prices could get a short-term boost at the end of June and in early July. However, weather and crop conditions will quickly take over as the dominant market influence.

Unlike corn, the soybean market has struggled since last fall with very sluggish demand. Season-to-date export sales at press time were down 21 percent from a year earlier. Bird flu and a larger 2005 South American soybean crop than previously estimated are likely factors behind our lower exports.

Sluggish export demand and last year’s record U.S. yield are pushing soybean stocks up sharply. Recent projections place Aug. 31, U.S. carryover stocks at more than five times as large as 2 years earlier, or about an 11 week supply. That is expected to push stocks well above the half-billion bushel level and up to a new record high. The large stocks are a caution that late summer and fall bean prices have significant down-side risk, provided growing conditions allow a U.S. yield near the long-term trend. Large stocks also will temper but not completely eliminate market sensitivity to weather problems this summer.

Soybean exports may begin a modest recovery this fall. Recent reports indicate Brazil’s crop was hurt a bit more by Asian rust than previously anticipated. Even with rust problems, Brazil’s crop is believed to be a new record high. But by fall, Brazilian acreage indicators may point to another modest decline in bean plantings as farmers switch crops to avoid high costs of controlling Asian rust. With prospects for reduced Brazilian plantings, foreign buyers may be interested in booking more U.S. beans.

WHEAT

If you raise soft red wheat and have adequate farm storage, check elevator bids for delivery from November through March. As this is being written, the Chicago futures offer significantly higher prices than the cash market for delivery in the winter and early spring. The Board reflected enough price premium for winter and spring delivery to more than cover farm storage costs—enough to cover elevator storage costs in some cases.

Hard red winter wheat supplies almost certainly will be considerably tighter than soft wheat because of drought impacts on the crop from western Kansas and Colorado southward. An increase in soft red planted acreage also is part of the soft wheat supply picture. Tight hard wheat supplies may bring modestly higher wheat prices in late summer.

Upward price potential will depend on the size of crops in Europe, China, Canada, former Soviet republics and India. Early indicators suggest production may be down from 2005 in former Soviet republics.

Canadian farmers are believed to have increased their hard red spring wheat plantings this year because of disappointing prices for canola and strength in wheat prices. Canada started the season with good soil moisture in its wheat belt. However, a slight decrease in U.S. hard red spring wheat acreage in the northern plains will partially offset increased Canadian plantings.

At this writing, reports out of Europe and China have not shown major problems. Even so, U.S. drought and a downtrend in Chinese stocks for the past several years point to tightening world wheat supplies in the year ahead, with stocks possibly the tightest since the mid-1990s. Tighter U.S. and world supplies will make fall hard wheat markets unusually sensitive to soil moisture and planting conditions in the southern plains.