Corn 

Supply at risk

Fertilizer prices, weak ethanol might limit plantings

by Dr. Robert Wisner

Prices in the next several weeks will need to be high enough to compete for acreage and to allow farmers to apply enough fertilizer for good yields. With less than normal fieldwork completed last fall and wet soils, the market also may worry about delayed plantings. Upside possibilities will be substantially less than last spring, with the much lower energy prices and a sluggish world economy, but significant short-term rallies are still possible. Watch for opportunities to boost marketings of old and new-crop corn between now and the end of the planting season.

Along with weather, energy prices, and the need to compete for acreage, important influences on the corn market will include final numbers for the Southern Hemisphere corn crop, weekly export sales reports out on Thursday mornings, the USDA March 31 planting intentions and stocks reports—and the amount of assistance given to help struggling ethanol plants. At press time, about 890 millions of gallons of ethanol production capacity were shut down. Several more plants were in shaky financial condition. Plants shut down (figured at an annual rate) represented about 320 million bushels of lost demand for corn. We don’t expect all of these plants to be shut down for a full year. If conditions worsen, that will increase the chances for substantial government help. Another element in the ethanol market is the government mandate to blend 10 billion gallons of ethanol in the nation’s gasoline supply this calendar year. That will require about 3.6 billion bushels of corn. Next year’s mandate is 11.4 billion gallons.

Reports from South America indicate that both Brazil and Argentina production will be modestly below last year. At press time, USDA projections showed their potential crops to be down about 310 million bushels from last year. These two countries are our largest corn competitors in world markets, with Brazil over-taking China as the No. 3 corn exporter in recent years. Final crop estimates for these two countries won’t be available for several months. Brazil plants part of its crop after the soybean harvest, with that part of the corn crop being harvested in August and early September. Foreign feed wheat is currently a big competitor of corn, but that competition may slacken some by fall.

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Wheat  

Supply rally

Inventory and better world crop steer wheat prices

by Dr. Robert Wisner

Watch for rallies between now and late April for opportunities to increase marketings of old-crop wheat and to make conservative sales of wheat that you don’t have storage for or want to move at harvest. Short-term potential volatility comes from uncertainty about winter wheat crop conditions in the U.S. as well as in China, Europe and former Soviet republics. But sluggish demand and the slightly more than doubling of prospective U.S. June 1 carryover stocks point to down-side risk. World wheat carryover stocks are anticipated to be up 11 to 12 percent from a year earlier.

The largest sources of increased competition in world wheat markets are Europe and former Soviet republics. Their crops were exceptionally large last year because of favorable weather and increased plantings in response to record high world wheat prices. EU exports are projected to be about 55 percent above last year.

Combined U.S. wheat export sales at this writing are down about 26 percent from a year earlier, with USDA projections calling for a 20 percent drop for the marketing year ending June 30. Because of hard times in the world economy, lower priced soft wheat export sales have held up better than those for more expensive hard wheat. Cumulative export sales of U.S. soft red wheat were down only 6 percent from a year earlier at press time. That compares with declines of 40 percent for hard red spring wheat and 18 percent for hard red winter wheat.

Looking further ahead, the stage may be set for somewhat better wheat prices late this year and next year. That is due to an expected global acreage decline in 2009 in response to cost-price pressures. Economic stimulus efforts of most major developed countries and China should also begin to strengthen the global economy some by late this year, but don’t look for a rapid improvement.

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Soybeans 

Pray for China

Exports and the Chinese economy key to soy prices

by Dr. Robert Wisner

Soybean prices in the next two and one-half months will be strongly influenced by the ethanol and corn markets, crop progress, the March 31 USDA reports and South American crops—as well as the status of the Chinese economy. As with corn, modest short-term rallies are possible in response to weather. But don’t look for a repeat of last year’s extremely explosive market. Crude oil prices have been down as much as 75 percent from the high early last summer. That makes corn and soybeans much less valuable as energy crops than a year ago.

China is a key to U.S. soybean export prospects from now through early fall. Last year, it accounted for about 44 percent of our soybean exports. Its demand for soybeans has been a strong growth market for the last several years. This year, the Chinese economy is slowing in response to the global economic slowdown and reduced demand for its exports. China’s government is providing economic stimulus through reduced taxes and increased expenditures on infrastructure. But it is doubtful these efforts will be able to fully offset reduced international demand. Reports in recent months show increasing unemployment in China. That will likely slow its growth in demand for U.S. soybeans. The rapid uptrend has been stimulated by an expanding middle class that has been channeling part of its income growth into more meat, poultry and dairy products and more soybean oil for cooking.

As we went to press, cumulative U.S. soybean export sales to all destinations were down 2 percent from a year earlier. However, sales to China were up 17 percent from a year earlier. That pushed China up to 49 percent of all U.S. soybean export sales. Sales to the Western Hemisphere, Africa, other Asia and EU all were well below a year earlier because of the weak global economy. The weakest link in demand, however, was in reduced domestic crushings. Losses in U.S. livestock and poultry production have translated into reduced demand for soybean meal and low energy prices have halted biodiesel production at many plants.

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Cattle 

No bright news for cattle

Feeder calf prices stay high, but so does feed

by Glenn Grimes

The difference in price between light- and heavy-weight feeder cattle has both a seasonal and a cyclical pattern. It is also influenced by feed prices.

On the graph, note the narrowing spread between the price of 400-to-500 lb. and 600-to-700 lb. feeder steers. The wide difference between light-weight and heavy-weight feeder steer prices in the early part of the year was due mostly to the demand for light-weight cattle to go on spring pastures. November’s wider differential was due to demand for light-weight cattle to go on wheat pasture, or is an aberration. The narrowing spread through 2008 was due to both demand for cattle to go on spring pastures and the high feed prices that developed mid-year.

Cattle feeders had big losses in 2008 due to high feed costs and weak domestic demand for beef, which resulted in lower prices for fed cattle than they had anticipated.

The spread between light- and heavy-weight feeder cattle prices is expected to remain relatively narrow as long as fed cattle prices remain low relative to the cost of weight gain in feedlots. Under these conditions, the producer’s margin for backgrounding cattle usually improves relative to feeder calf production.

Producers are reducing the cattle herd. Beef supplies cannot be sustained at the current level with high feed costs, weak demand and a weak general economy.

Demand for beef at the consumer level was down 4.4 percent for the January to October period compared to a year earlier. In fact, our demand index for all meats at the consumer level was down during these months. Pork demand was down 4.1 percent; broiler demand was down 3.2 percent; and turkey demand was down 6.1 percent. Much of this weakness is believed to be at least partially due to the weak general economy.

Demand for live animals was up during January to October, with live cattle demand up about 1 percent and live hogs up a whopping 7.7 percent compared to these months in 2007. The strong demand for live animals is due mostly, if not completely, to increased exports of beef and pork rather than domestic consumption.

The amount of U.S. beef exported during January to October was up 35.3 percent from a year earlier, while imports of beef were down 22 percent. During these months, our net import of beef declined from 6.6 percent in 2007 to 2.0 percent in 2008. The value of beef and beef variety meats exported per animal slaughtered in January-October increased from $75.47 per head in 2007 to $106.40 per head in 2008. World trade is very important to the U.S. cattle industry.

Feeder cattle prices are expected to stay relatively high in 2009 compared to history. However, the cost for producing calves is also expected to be high and probably will result in losses to most producers of feeder cattle. Hopefully, cattle feeders will not experience the astronomical losses of 2008.

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