GRAIN REPORT
By Dr. Robert Wisner

CORN

The crop looked good over most of the Midwest at press time. But keep in mind that even with a normal trend yield, production would fall well short of anticipated demand. That’s due to 34 percent increase in projected corn processing for ethanol as well as foreign crop problems. Another potential factor in summer corn prices is that rainfall in much of the western Corn Belt in spring and early summer was well below normal. Dry weather in August likely would have a negative but smaller impact on yields than the same kind of weather during pollination.

Plan to use a scale-up approach to market old-crop grain, increasing sales modestly with each moderate additional increase in price. The same strategy looks appropriate for new-crop marketings, provided you keep sales conservative in relationship to your own yield potential. Check out contracts for 2007 delivery. If you have on-farm storage space, the market has been offering prices for winter and spring delivery that are above current cash prices and should leave good storage profits for corn in well-managed farm bins. The basis in bids for spring 2007 delivery has been much better than for late summer and fall, and has been best at ethanol processing plants and river markets.

In the international picture, U.S. corn has three main direct competitors: China, Argentina and South Africa. Argentina’s corn crop was hurt by hot, dry weather during pollination. USDA estimates its spring harvest was down 32 percent—about 260 million bushels from last year. South Africa’s crop is estimated to be down 36 percent or 170 million bushels. Brazil also is a modest competitor. With a small increase in Brazil’s exports, these crop problems are expected to bring a drop of about 275 million bushels in foreign export competition. Early indicators show reasonably good prospects for China’s corn, but a lot of weather remains before it is in the bin.

BEANS

Like corn, the soybean crop was off to a strong start in early summer in most areas. The few areas reporting Asian rust in Georgia, Alabama, and Florida were a concern for local farmers but were not a serious threat to U.S. supplies since that region is only a very minor producer of soybeans. However, there are several important differences between the corn and soybean markets. First, U.S. soybean carryover stocks have increased very rapidly in the last 2 years and are expected to continue rising in the year ahead. Stocks this Aug. 31 are expected to be more than five times as large as 2 years earlier. Second, U.S. soybean exports and outstanding export sales have been weak all season, with the marketing year to date total at press time down 21 percent from a year earlier. Sales to our two largest customers, China and EU, were down 21 percent and 58 percent respectively from a year earlier. Third, domestic soybean use has been increasing more slowly than for corn.

Despite these negative market factors, soybean prices will be potentially very sensitive to weather this summer. Sensitivity will be heightened by

the increased role of commodity index fund traders in the last couple of years, as well as by expectations that Brazilian farmers will reduce soybean plantings this fall. Brazilian farmers are dealing with financial stress stemming from an adverse exchange rate of their currency, the high cost of multiple sprayings to control Asian soybean rust and drought problems in 2005.

Plan to use a scale-up approach to marketing old-crop beans, boosting sales on weather rallies. Like corn, new-crop sales levels should be conservative and based on your expected yields. Also like corn, prices are better for winter and spring delivery than for harvest. If you have enough storage, watch for opportunities to lock in storage profits through sales for 2007 delivery.

WHEAT

Along with well-publicized drought problems for hard red winter wheat in the central and southern plains of the U.S., production is expected to be below normal in the former Soviet Union. That combination is projected to tighten world wheat supplies modestly in the coming year, and to reduce carryover stocks. World wheat supplies are projected to be about 2 percent below last year, after holding steady for the 2005-06 marketing year. Most of the tightening in supplies is expected to be in hard wheat. Soft wheat supplies in the U.S. will be well above a year earlier and early indicators of foreign soft wheat crops look more promising than for hard wheat.

Look for a gradual rise in cash hard wheat prices from early fall into at least November as the market works through August to September spring wheat harvest pressures in the U.S. and Canada. Price strength appears likely to be enough to at least cover storage costs and may generate a modest storage profit. Soft wheat prices may show a little less strength because of this year’s better yields and relatively more plentiful supplies. Fall prices for both types of wheat will be unusually sensitive to winter wheat planting progress, September and October rainfall from Nebraska to Texas, and crop condition reports.

China also will be an important player to watch in the wheat market this summer. Three years ago China reentered the U.S. wheat market in a after a long absence. The next year, it accounted for about 11 percent of U.S. wheat exports, with heavy emphasis on soft and hard spring wheat varieties. In the year ended May 31, 2006, Chinese purchases dropped back to only 2 percent of U.S. wheat exports and were an important part of the reason for the sharp decline in U.S. soft red wheat exports. Early indications from USDA and infra red satellite imagery indicate the Chinese crop should be reasonably good this year.