GRAIN REPORT
By Dr. Robert Wisner

CORN

USDA’s Sept.12 crop report will update indication of potential supplies for the year ahead and should give a good indication of how crops fared in dry areas this summer. Sizable parts of Iowa, South Dakota, Nebraska, Minnesota, western Illinois and Missouri were relatively dry during silking and pollination. Indicated production should be compared with potential usage of 11.6 to 11.7 billion bushels in the year ahead. Normal yields would be expected to bring a sharp reduction in carryover stocks by Aug. 31, 2007 and below-normal yields likely would require higher prices to ration usage.

If the September report shows a potential U.S. yield of 146 bushels per acre or higher, that would be a signal to boost marketings of corn you will need to move at harvest. Yields at that level would likely cause at least localized shortages of storage space, creating the potential for lower prices and a weaker basis at harvest. If you have good on-farm storage facilities, near-normal yields would indicate above average storage profits are likely for holding corn into next spring.

Demand prospects look very positive for the year ahead. USDA projects a 34 percent increase in corn processing for ethanol as several new ethanol plants come on line. Pork producers indicate they plan to increase hog numbers slightly, and cattle on feed as well as poultry numbers are expected to remain large.

In the international picture, reduced Southern Hemisphere corn supplies have boosted export demand for U.S. corn and are expected to continue as a positive influence on our exports until that area’s next crop is harvested in the spring. Chinese corn stocks are believed to have trended downward in the last few years. Current estimates show stocks at historically low levels, although accuracy of the numbers is not guaranteed. Early and very tentative projections place Chinese production slightly below last year.

BEANS

he Sept. 12 crop report will indicate price prospects for the next several months. The production forecast should be compared with potential usage of about 3 billion bushels in the year ahead. A crop equal to or exceeding 3 billion bushels would be a signal of further pressure on prices and the basis as harvesting accelerates. A crop 50 to 75 million bushels below potential use could bring temporary price strength and would increase the chances for a rally in prices soon after harvest.

Soybean demand has been sluggish in the marketing year just ending. Season total exports are expected to be down 16 to 18 percent from a year earlier, due to bird flu and large South American supplies. The 1.4 percent increase in domestic crush (processing) was not enough to offset weaker export markets. As a result, Aug. 31 carryover stocks are expected to be more than double the year earlier level and nearly five times as large as 2 years ago. A crop at or above 3 billion bushels would indicate that bean stocks are likely to remain large in the year ahead.

After harvest, the soybean trade will focus largely on three market factors: 1) weekly export sales; 2) the amount of new demand for soybean oil for biodiesel; and 3) indications of how much Brazilian soybean acreage will be planted this fall. Our contacts in Brazil indicate producers are likely to reduce plantings moderately in Mato Grosso and other northern and central parts of its soybean growing region because of financial pressures stemming from an unfavorable exchange rate and the high cost of multiple sprayings for Asian rust. In areas further south where the climate is not quite as favorable for Asian rust, smaller acreage adjustments are anticipated. Early reports suggest Brazil’s soybean acreage may be down 6 percent to 7 percent from last season.

WHEAT

Look for a slight irregular uptrend in wheat prices into early November, with considerable volatility. Substantial strength would be likely if the Great Plains drought continues into the fall. Hard wheat prices have more upside potential than soft wheat because of the sharp decline in production from Nebraska to Texas this year, as well as a sharp drop in production expected in former Soviet republics. Dry weather in the U.S. Spring Wheat Belt also has reduced the size of that crop. However, prices this summer have reduced export sales of hard red winter wheat substantially. In contrast, soft red wheat export sales have rebounded sharply from last season’s very depressed level.

In the international picture, early projections indicate the EU wheat crop was modestly above last year, along with an 8 percent increase estimated for China and an expected increase in Argentina’s crop to be harvested this winter. However, larger crops anticipated for these areas appear to be more than offset by smaller crops in Russia, the Ukraine, the United States, India and Pakistan. Reduced production is projected to reduce world stocks as a percent of annual use to levels of the early 1970s. But keep in mind three developments that may make the wheat market a little less sensitive than at that time. First, these early projections of crop size have a history of being conservative. Over the last 25 years, world production has increased from the summer estimates about 60 percent of the time. Second, the world grain trade has learned to live with lower inventories than 35 years ago. Third, China has made several huge upward revisions in its grain stocks in the last few years. Today’s world stocks numbers do not look as tight as pre-revised data did in the mid-1990s.

U.S. hard wheat export sales at press time showed a broad-based decline that included most major foreign markets—with the exception of Japan.