Markets
Corn Watch closely
Late harvest, old-crop use and weak dollar make things interesting
|
Wheat
Plentiful supply 
There’s a reason you don’t see many green fields this winter
Plan to use any modest rallies in hard and soft wheat prices to boost old-crop sales this winter. Supplies are at the highest level in several years here in the U.S. and at the global level are more than adequate although not as burdensome. Possible sources of short-term price strength this winter include 1) a stronger corn market; 2) weather concerns for the 2010 U.S. wheat crop; and 3) the possibility of winter-kill on wheat in former Soviet republics. But with plentiful supplies and lagging exports, don’t set your wheat marketing sights too high.
On the supply side, U.S. June 1, 2010 wheat carryover stocks appear to be headed toward at least a 21-weeks supply, up from 6.9 weeks two years earlier. World stocks appear to be headed toward a 15-weeks supply vs. 10 weeks two years ago. The largest excess stocks beyond market needs domestically will be in soft red winter and hard red winter wheat, due partly to a sharp drop in export demand. Cumulative soft red winter wheat exports at press time were 61 percent below a year earlier, along with a 50 percent drop for hard red winter wheat. White wheat and durum export sales were up sharply. White wheat is grown mainly in the Pacific Northwest and is used extensively in Asia. Durum wheat is grown in the northern Great Plains and is used for pasta.
While the sharp drop in export demand for soft red wheat is discouraging, it may be partially offset by a sharp drop in soft red wheat plantings this season in the eastern Corn Belt and Mid-South as a result of heavy rains and the very late soybean harvest. Hard red winter wheat acreage may be slightly below a year earlier, but planting conditions and the fall growing season were favorable for much of the crop.
|
Look for periods of at least modest price strength into mid-January as grain traders evaluate U.S. supplies, South American crop prospects, ethanol demand and effects of lower-than-normal crop quality on livestock feeding efficiency. Plan to use rallies during this period to cover winter and early spring cash-flow needs. Be prepared for briefly weaker prices in early spring as warmer weather creates the need to move more higher-moisture grain than usual to avoid spoilage problems.
The late harvest will make USDA’s Jan. 12 grain stocks and season final crop production reports much more important to the market than usual. Uncertainty over the extent of field losses, low test weights and their impacts on the final crop size will create potentially more volatile prices than usual this winter. Most private analysts expect little change in corn production numbers from the USDA November report, so a change in yield of one to two bushels per acre could cause a temporary price reaction. The stocks report will provide a reading on how much corn was fed domestically during the September-to-November period. Because of the late harvest, a substantial part of the feeding during this quarter was old-crop corn. A clearer picture of corn quality impacts on feed use may have to wait until the end-of-March grain stocks report.
Increased crude oil and gasoline prices have strengthened the demand for corn at ethanol plants. With improved returns, several formerly bankrupt plants are now back on line and will boost corn needs this winter. Season total corn export sales as we went to press were about 5 percent above the disappointing year-ago levels, but have been slow to increase. Foreign buyers appear to be filling more of their needs with foreign feed wheat in response to the 50-cent rise in corn prices since early October. However, for some countries, the higher prices were tempered by the weak dollar. Sluggish world economic conditions also appear to be tempering export demand. This winter, foreign buyers will be carefully monitoring South American crop conditions in hopes of a sharp recovery from last spring’s drought-reduced harvest. Any weather concerns there in late December, January, or early February could boost prices.
|
Soybeans
Be ready 
Good or bad news from South American will move markets
As with corn, the soybean market will have the potential for substantial volatility into early January due to uncertainty about field losses, and impacts of disease and frost damage on yields. The January crop production report should greatly reduce this uncertainty and allow the market to focus more on demand indicators, which are mostly positive. Plan to use rallies this winter to boost sales to cover winter and spring cash needs.
Prices this winter also will be very sensitive to weather and crop condition reports from South America, due to very tight old-crop Brazilian and Argentine supplies. Last winter’s drought is estimated to have cut combined production there 780 million bushels from a year earlier. That’s equivalent to about 60 percent of projected U.S. soybean exports for this entire marketing year. Any widespread actual crop problems or threats of problems there in January and early February would quickly be translated into higher prices. But be aware that if South America’s crop looks good by the second or third week of February, downside risk in soybean prices in late February and March will be substantial.
U.S. soybean export demand so far has been the best ever. Cumulative U.S. soybean export sales as we went to press were 61 percent above a year earlier and were equivalent to about 2/3 of the projected marketing year total exports. Although demand was soft in the Western Hemisphere, Africa, and Europe, big increases in most of Asia (except Japan) were much more than offsetting. China’s purchases were more than double the year-ago levels. Strong demand there reflects its reduced domestic soybean production as well as expanded livestock, poultry, and fish feeding, and the Chinese government’s desire to maintain reserve stocks.
U.S. domestic soybean crushings started out below a year earlier this fall because of the slow harvest and tight old-crop supplies. However, at this writing, reported crushing margins are about 75 cents per bushel above year-ago levels and should encourage increased processor demand with more readily available supplies.
|
Cattle
Shrinking herd, soft demand
Exports need strength to turn market
One of the important statistics in forecasting cattle slaughter is the size of the calf crop (see graph). The key factor in predicting the calf crop is the size of the breeding herd. In other words, how many heifers are being held for herd replacement and the number of cull cows being slaughtered.
The slaughter above and below calf crop shows the cattle production cycle. When the breeding herd is being increased, slaughter is less than indicated by the calf crop and vice versa. With smaller calf crops in 2008 and 2009, slaughter is likely to be smaller for at least the next two years. A substantial decline in slaughter is likely when herd building starts the next cattle cycle.
The demand for beef at the consumer level for January to August was down 2 percent from the same months of 2008. Based on the data, demand for pork was up 3.9 percent but broiler demand was down 3.4 percent for the first 8 months of 2009 compared to a year earlier.
Live fed cattle demand was down sharply at an 8.5 percent loss from a year earlier. The bigger decline in live fed cattle demand than consumer demand was due to weak export demand and very weak hotel and restaurant demand. Hotel and restaurant sales of beef in the United States is a very important part of total sales.
Fed cattle prices live in early October were about $15 per hundredweight below a year earlier. The major reason for the decline in fed cattle prices in the last year is weak domestic demand for beef.
Feeder calf prices for 400 to 500 pound steers in early October were about the same as a year earlier. However, 700 to 800 pound yearling feeder steers in early October 2009 were $3 to $5 per hundredweight lower than 12 months earlier.
Cow slaughter for the year 2009 through September was the same as last year with only a 0.1 percent increase in total cow slaughter. However, dairy cow slaughter was up 13 percent and beef cow slaughter was down 9.1 percent from 12 months earlier.
The dairy cow herd is expected to be down 2 to 3 percent on Jan. 1, 2010, from a year earlier and the beef cow herd is expected to be down 1 to 2 percent from 12 months earlier at the beginning of 2010.
The near record corn crop of over 13 billion bushels with a record high yield expected to be above 164 bushels compared to the record high in 2004 of 160 bushels per acre should help moderate feed costs. Soybean production is expected to be a record high if not reduced too much from frost on late planted beans. Corn prices for the 2009/10 marketing year are predicted to be down $0.70 per bushel from 12 months earlier and soybean meal prices are expected to be down $55 per ton in the 2009/10 marketing year compared to 2008/09 market year.
These lower feed prices are expected to keep feeder cattle prices this winter relatively close to a year earlier even with lower fed cattle prices.
Dr. Robert Wisner is an agricultural economist at Iowa State University. Glenn Grimes is a MU professor.
Click here to respond to this article
Top of Page
