GRAIN REPORT
By Dr. Robert Wisner

CORN

Look for cash prices and the basis to strengthen gradually into early February as harvest pressures and farmer selling diminish, and the market begins to respond to demand prospects. Prices in January and early February also will be sensitive to crop prospects in Argentina, South Africa and Brazil. These three countries plus China are the major sources of direct export competition for U.S. corn.

Last year, corn crops in the first two of these countries were reduced by bad weather. In Brazil, farmers may shift some soybean acres to corn because of high costs of controlling Asian soybean rust.

Early indicators point to more significant price and basis strength in April and May as the grain trade focuses on next year’s acreage and yield prospects. To meet anticipated demand growth, at least 3 to 4 million more corn acres may be needed in 2007 than were planted last spring. A substantial price incentive will be necessary for farmers to cover high input costs and boost acreage that much.

Profit prospects look favorable for storing corn in on-farm facilities into late spring. If you have above average cashflow needs and limited risk-bearing ability, you may want to consider contracting some corn for late spring or early summer delivery to protect storage profits. If the contracts let you decide when to lock in the basis, keep in mind that the odds favor a stronger basis in mid-to-late spring.

During the winter and spring, consider setting several specific price goals and using offer contracts as a way to scale up sales on rallies. These contracts can be a useful tool for both 2006 and 2007 crop marketings. During times of volatile prices, the market may touch your price goal or goals only briefly, but elevator merchandisers watch prices continually and may be able to make sales at prices that you otherwise would not know were available.

BEANS

Despite negative harvest-time fundamentals, cash soybean prices appear likely to increase at least modestly into early February. USDA and trade analysts indicate Brazil’s soybean acreage this year will be down at least 5 percent to 8 percent from last season, although Argentine plantings are likely to be up slightly. Reports from our Brazilian contacts indicate plantings could be down as much as 15 percent to 18 percent in some individual states.

Many Brazilian farmers are in a serious financial crisis because of an unfavorable currency exchange rate, severe drought a couple years ago, high costs of multiple sprayings to control Asian rust, high interest costs and rising input prices.

From late March onward, soybean prices are likely to take direction from U.S. soybean acreage and weather prospects. To meet the rapidly growing demand for ethanol fuels, more corn acres will be needed in 2007. Extra corn plantings are likely to come mainly from soybeans. That and a number of new biodiesel plants that are expected to come into operation in 2007 and 2008 will set the stage for relatively strong and volatile soybean prices in the spring and early summer. Like corn, offer contracts can be an important soybean marketing tool in times of volatile prices.

Bird flu will be an important market factor to watch again this year. Last season, problems with the disease were centered in China and several other southeastern Asia countries, along with a number of cases in western Europe, Turkey, Romania and Russia. While actual reductions in bird numbers as a result of the disease were small, worry about the disease turned consumers away from poultry in some countries. Southeast Asia has millions of backyard flocks, making management of the disease difficult.

WHEAT

Look for hard and soft red winter wheat prices to be more volatile into late winter and early spring as the market responds to the final size of the Southern Hemisphere crops and possible winter-kill problems on wheat in the U.S., Europe, and former Soviet republics. At least brief periods of higher prices appear likely as the market responds to these conditions and low carryover stocks.

Because of tighter supplies, hard red wheat prices may have more upside potential than soft red wheat. Australia, one of the two major Southern Hemisphere wheat producers, has had a drought this season. That likely will limit its exports although supplies from former Soviet republics should be substantial. The extent of strength in the market also will depend heavily on sales to Iraq and whether China imports significant volumes of wheat this season. Iraq became a large market for U.S. hard red winter wheat last year, pushing its position up to the No. 4 U.S. foreign market for wheat.

Two years ago, China was a substantial importer of wheat. However, its exports dropped sharply last season because of a better Chinese wheat crop. Preliminary estimates indicate its wheat imports this marketing year should be quite small although purchases will be influenced some by prospects for its 2008 crop.

Early estimates indicate U.S. hard red winter wheat plantings were up modestly this fall. In the soft red wheat areas of the eastern Corn Belt, plantings appear to have been down at least modestly from a year earlier in response to a very depressed basis and low prices. Soil moisture supplies looked generable for wheat plantings in October, but low prices and a weak soft red wheat basis in many areas have led farmers to look at shifting soft red wheat acres to corn or full-season soybeans in 2007.