Markets
Corn 
Strong supply
But watch South American market and ethanol rules
by Dr. Robert Wisner
The USDA Nov.10 crop report will be a good indicator of this season’s corn supply, although the final estimate on Jan. 8 may fine-tune both the yield and acreage. Barring surprises, the report should confirm that corn supplies will be fully adequate to ample to meet demand from now though summer. Carryover stocks next August are expected to be adequate to slightly more than adequate. With these prospects, don’t set your price sights too high as you watch for rallies to cover your winter and early spring cash-flow needs. Chances for covering on-farm storage costs and generating modest profits look good if you watch the markets closely. Rallies this winter will depend to a considerable extent on 1) weather in Argentina and southern Brazil; 2) whether EPA in its Dec. 1 decision allows higher ethanol blends than E-10 for non-flex-fuel vehicles; and 3) the crude oil market.
The key to corn demand for ethanol hinges heavily on whether EPA will allow blends of E-12 to E-15 for conventional vehicles. |
As we went to press, new-crop U.S. corn exports were somewhat stronger than a year ago, with cumulative sales 5 percent larger than a year earlier. Because of the 680 million bushel decline in South America’s corn crop last spring and a 425 million bushel estimated decline in wheat production in EU and former Soviet republics, U.S. corn export sales should be increasing more significantly as you read this. Demand will be tempered some by the world economic slowdown, but should still increase considerably from last season because of sharply reduced foreign competition. How long the strong export demand continues will depend heavily on South American weather. As this is being written, nearly all of Argentina’s grain belt and most of the southern provinces of Brazil were still in a drought situation. If that should continue into December, it would impact the region’s corn crop to be harvested next spring.
The key to corn demand for ethanol hinges heavily on whether EPA will allow blends of E-12 to E-15 for conventional vehicles. Odds favor that change, which would boost the potential ethanol market by roughly 20 to 50 percent, depending on which higher blend is allowed. If higher blends aren’t allowed, that will greatly limit the future of both corn-starch and cellulose ethanol.
Dr. Robert Wisner is an agricultural economist at the Iowa State University Ag Marketing Resource Center. Glenn Grimes is a MU professor
Soybeans  Exports up Short soybean crop in Southern Hemisphere helps by Dr. Robert Wisner Watch for rallies between now and mid-February to boost sales and cover winter and spring cash-flow needs. Strong export demand and nervousness about South American weather will contribute to volatile prices this winter and should at times bring moderate market rallies. Whether significant rallies can continue into the spring will depend heavily on rain or lack of it in Argentina and southern Brazil. As with corn, USDA’s Nov. 10 and Jan. 8 crop estimates also will be important market indicators to watch for, but should continue to show adequate to ample U.S. supplies. Indicators so far reinforce our expectations of strong fall and winter export demand. At press time, cumulative new-crop U.S. soybean export sales were a whopping 92 percent above a year earlier. The driving force was tight South American supplies that resulted from an estimated 710 million bushel decline from a year earlier in its harvest last spring. China boosted its imports of 2008-crop U.S. soybeans last season by 40 percent, with the biggest reason being the reduced supply available from our competitors. Its imports from all sources were reported to be up a much more modest 5 percent. As this is being written, China already has purchased 55 percent more U.S. beans than at the same time a year earlier. Whether the strong export demand continues beyond mid-February will depend heavily on November through early February rainfall in Brazil and Argentina. The planting season can be extended a bit longer for soybeans in Brazil than for corn, although farmers there have tended to plant earlier in recent years to reduce problems with Asian soybean rust. By mid-to-late December, a major part of the crop there should be planted. Domestic demand for meal has been hampered by very depressed livestock and poultry feeding profits for many months. A quick improvement is not anticipated, although lower feed prices than a year earlier may help some. The U.S. Administration has said it will enforce the biodiesel mandates, starting in 2010, and will add the 2009 mandate—which was not enforced—to the 2010 mandate. If so, soy oil prices may strengthen some. A weakening exchange rate of the U.S. dollar also should help support bean prices. |
Cattle 
Beef liquidation slows
Drought relief in southern states steadies herd
by Glenn Grimes
There is a good relationship between beef cow slaughter and the percent change in the size of the Jan. 1 beef breeding cow herd (see figure). This data indicates 10 percent of the beef cow herd will be slaughtered in 2009, implying the Jan. 1, 2010 beef breeding cow inventory will likely be down 1 to 1.5 percent from 2009. The decline during 2008 was about 2.4 percent. This slowdown in the rate of decline in the beef cow herd is probably due at least in part to the more near-normal rainfall in the southeastern states following 2 to 3 years of drought. Beef producers in these states may be rebuilding their herds to normal levels.
Beef cow slaughter for 2009 through the week ending August 15 was down 8.7 percent from last year. For the 4-week period ending Aug. 15, it was down 9.3 percent from these weeks a year ago.
Dairy cow inventory Jan. 1, 2010, is expected to be down 1.5 to 2 percent from Jan. 1, 2009. This will help as far as feeder cattle prices are concerned because a significant portion of the dairy calf crop ends up in the feeder cattle supply.
The cattle inventory for July 1 in Canada showed the total number of cattle and calves was down 1.1 percent, cows and heifers that had calved was down 1.3 percent, and heifers held for beef herd replacements was down 3.3 percent. The total number of cattle and calves in the U.S. and Canada was down 1.6 percent on July 1 and the number of cows and heifers that had calved was down 1.8 percent.
Our demand index for beef at the consumer level was down 1.5 percent for January to July compared to a year ago. It is believed that the demand for beef by the hotel and restaurant trade was down substantially more than 1.5 percent. Demand for pork at the consumer level was up 4 percent, for broilers down 3.5 percent, and for turkey up 4.5 percent.
Demand for live fed cattle was down 8.1 percent during January to July compared to a year earlier. The substantially larger decline in demand for fed cattle than for beef at the consumer level is believed to be due to changes in beef imports and exports and less use of beef by the hotel and restaurant trade.
Beef exports for January to June were up 2.9 percent from a year earlier. Our net import of beef as a percent of U.S. production increased from 4.3 percent in January to June 2008 to 6.7 percent in 2009.
Imports of live feeder cattle from Mexico were up 22.4 percent in January to June, but live cattle imports from Canada were down 32.5 percent. Total imports of live cattle into the U.S. were down 16.8 percent during the first six months of the year compared to a year ago.
The value of beef exports per animal slaughtered in the U.S. during January to June was $73.35 per head, up from $69.64 a year ago. The total value of beef and veal exports including exports of byproducts was $89.98 per head for January-June 2009, down from $91.27 per head a year ago.
Wheat  Market wilts Good supply, good soil moisture, good crop and low prices by Dr. Robert Wisner U.S. and world wheat supplies look fully adequate for demand from now through next summer. That prospect and generally good soil moisture in much of the Winter Wheat Belt in early fall will likely temper wintertime rallies. Central and southern Texas were exceptions to the adequate to favorable soil moisture situation, but are not a large enough area to excite grain traders unless dry conditions would move north into the Texas-Oklahoma panhandles and Kansas. Other factors that could bring modest temporary strength in hard and soft wheat prices are 1) weather worries in Australia, if they should emerge; 2) possible winter-kill in former Soviet republics this winter; and 3) the possibility of weather concerns in China’s wheat belt. Barring these developments, it may be a challenge to generate significant profits for wheat storage. Export sales for most classes of U.S. wheat have been quite disappointing. As we went to press, cumulative 2009-crop sales of hard red winter were down 58 percent from a year earlier, with sharp declines for all major destinations. Soft red winter sales were down 52 percent, also with declines to all major export markets. China, which is not a major market, was the exception. It had purchased 2.4 million bushels versus no purchases a year earlier. Although it made sizeable purchases of U.S. wheat a few years ago, China has not developed into a major market for wheat from any source. It has been successful in increasing yields enough to supply most of its domestic needs. Export sales of hard red spring wheat were down 25 percent from a year earlier. The only classes showing increased export business were white wheat, produced mostly in the Pacific Northwest (up 33 percent) and durum (up 52 percent). The main hope for a sharp turn around in U.S. wheat exports would be foreign weather problems, if they should develop this winter or next spring. |
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