Markets
Corn
For the summer quarter, domestic processing has become the largest source of demand for U.S.corn. |
Ears to the track
USDA reports still pivotal in short-term volatility
The sharply lower South American crop last spring, the potential for a modest improvement in livestock profitability and expectations that higher ethanol blends will be approved for conventional vehicles reinforce our expectations for modest on-farm storage profits this year. Elevator storage profitability is more uncertain, although modest profits may be possible for those who watch the markets closely and are prepared to move quickly on sales during the winter.
Look for a longer-than-normal harvest with modest volatility early in the season as grain traders react to any concerns about damage from possible early frosts in the northern and central parts of the Corn Belt. The most vulnerable areas include the Dakotas, northwestern Minnesota and northern and central parts of Illinois, Indiana, Ohio, Michigan, as well as parts of Missouri and south central Iowa. The crop was planted with normal timing in most of northern and central Iowa, southern Minnesota and Nebraska. These major producing areas should have low risk of frost damage.
As you fine-tune your storage, marketing and feed-purchasing plans, take a close look at USDA’s Sept. 11 and Oct. 9 crop yield and production forecasts. A U.S. corn yield forecast in the 153 to 154 bushel per acre range would signal adequate but not extremely burdensome corn supplies for the year ahead. A yield two to three bushels below the lower end of this range would be an indicator of tightening corn supplies next spring and summer. Yields two to three bushels above this range would delay the post-harvest price recovery and temper spring and summer upside price potential.
The Sept. 30 grain stocks report also will be more important than usual. It allows analysts to estimate the amount of corn fed during the June to August quarter. Last summer’s estimated feed use was unusually low and a small recovery has been anticipated this year. For the summer quarter, domestic processing has become the largest source of demand for U.S. corn. That’s in sharp contrast to the past. Historically, domestic corn feeding has been by far the largest source of demand for the corn crop.
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Wheat
Wheat picture is global Soil moisture, fall harvest and China’s reserve building rule the market Look for modestly higher hard and soft prices into October and possibly into early November, but with the price recovery strongly tempered by another increase in world stocks. The markets also will take direction from updated estimates of the Australian and Argentine November to December harvests, and from planting prospects for U.S. winter wheat. As we went to press, reports from Australia and Argentina were favorable, but Australians were nervous about El Niño prospects and possible negative influences on its weather. Early indicators point to a small increase in U.S. plantings but actual acreage will depend on soil moisture conditions from Kansas and Colorado to Texas as well as the timing of the soybean harvest in the eastern Corn Belt and South. U.S. wheat carryover stocks are expected to be up modestly next June and should be more than adequate for normal market needs. However, the biggest increase by far is in China, along with moderate increases in stocks in Russia, the Ukraine, India and parts of the Middle East. China, with its population of over 1.2 billion people, sees wisdom in maintaining a sizable grain reserve for food security purposes. Another motivation for their stocks-building efforts is the expectation that the U.S.’s extremely aggressive spending and government borrowing will weaken the dollar in world currency exchange markets. The Chinese also have been building stocks of other agricultural and industrial commodities for similar reasons and as a way to use some of their huge exchange reserves. Chinese stock-building adds a somewhat unpredictable element to the wheat market. There is no clear indication of what stocks levels the Chinese consider ample for food security reasons. Last year’s market action gives them incentive to carry larger stocks than they would have in the recent past. The stocks also give them a cushion that can be used to defer purchases or make temporary sales from inventories when government decision-makers think prices are too high. |
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Soybeans
Make some room
Southern soybean deficit pays dividends here
by Dr. Robert Wisner
Prospects for short-term on-farm storage profits look favorable because of the 785 million bushel decline from a year earlier in South America’s soybean spring 2009 harvest. As a result, competing soybean supplies in world markets will be much tighter than usual. The extent and length of the post-harvest rise in prices will be influenced by the size of the U.S. yield per acre. If the U.S. average yield is near the long-term trend line (about 42.5 bushels per acre), U.S. and world supplies should be adequate to carry users until next fall. However, with late soybean plantings over a large part of the Soybean Belt last spring and dry weather in the South, a trend-line yield is not yet assured.
Late plantings last year kept the yield at 39.6 bushels per acre. On this year’s acreage, that yield would lower the crop by about 220 billion bushels instead of a trend yield. That’s enough difference to require severe rationing of use to keep from running out of soybeans before next August if yields are at the low end of the range. The market’s way of rationing use is through high prices. In each of the last several late-planting years, the U.S. yield was well below the long-term trend.
With the sensitivity of this year’s world markets to supplies, it will be very important to watch for USDA’s Sept. 11 and Oct. 9 crop forecasts. The indicated yield per acre will be the most important information from the report, but some revision in harvested acreage can’t be ruled out. As with corn, it also will be important to watch for the Sept. 30 stocks report. The stocks numbers will provide a check on last year’s crop estimate— since uses of soybeans are measured directly. If the stocks differ significantly from those indicated by last fall’s estimated supply and September to August use, that would indicate some adjustment in 2008 production numbers may be needed. So far, the data have not suggested that a crop revision is needed, so no surprises are expected.
Another key factor for soybean prices in the year ahead is whether the mandated level of biodiesel blending is enforced. It hasn’t been this year, but we expect enforcement in 2010.
Cattle Double peaked price point by Glenn Grimes The seasonality in the price of 500 to 550 lb. steer calves for the 10-year period of 1999 to 2008 was bimodal with a high for the year in March and a secondary peak in July. The low for the year was in October (see graph). The March high is probably due to the demand for young cattle to be put on grass. The secondary peak in July is not completely explainable. July is too early for young cattle to go to wheat pastures. In mid-June this year, feeder cattle prices were $11 to $12 per cwt. lower than a year earlier due to higher corn prices and lower fed cattle prices. These lower prices for feeders are expected to continue through the year because of weak fed cattle prices. In April 2009, beef and veal exports were 0.7 percent above a year earlier. For the January to April period, beef exports were 5 percent above the same months in 2008. U.S. imports of beef during January to April were up 15 percent from a year ago. Canada’s sales to the U.S. were up 0.6 percent, Australia’s up 55.1 percent, New Zealand’s up 3.4 percent, Uruguay’s up 53.6 percent, Brazil’s up 7.4 percent, Argentina’s up 12.9 percent, Mexico’s up 12.6 percent, Costa Rica’s up 28.2 percent, Honduras’ down 11.2 percent, and other countries’ down 31.6 percent. In January to April 2008, net beef imports were 4.07 percent of U.S. of production. In these months of 2009, net beef imports had increased to 5.41 percent of production. This is one of the reasons why demand for live fed cattle in the U.S. is down from last year. The value of U.S. beef and veal exports was up 6 percent for January to April 2009 compared to these months last year. The average value of beef and veal exported per each animal slaughtered in the U.S. this year was $69.19 per head—up 10 percent over 2008. The value of variety meats exported per animal slaughtered in 2009 was $17.99. If the value of variety meats is included, the total value of beef, veal and variety meats exported was $87.18 per head slaughtered in 2009, up from $84.10 in 2008. Total cattle imports were down 11.2 percent. Total cow slaughter for 2009 through May 30 was up 1.7 percent compared to a year ago. Dairy cow slaughter was up 12.6 percent but beef cow slaughter was down 6.3 percent. The reason for the increase in dairy cow slaughter is the dairy industry is bleeding red ink. If the big decline in beef cow slaughter continues through the rest of the year, it may stop the reduction in the beef cow herd. Pastures and ranges are quite lush in the midwest and southeast portions of the country. Demand for beef at the U.S. consumer level was down about 1 percent in January to May compared to a year ago. Demand weakness at the hotel and restaurant level is believed to be substantial. Demand for live fed cattle was down nearly 9 percent during January to May and weak demand at the hotel and restaurant level is believed to be the major factor. |
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