Markets
Wheat  El Niño comes out to play With large carryover, weather will determine price swings by Dr. Robert Wisner Look for at least brief periods of higher hard and soft prices into late October and possibly into November. World wheat carryover stocks are expected to remain large, but smaller crops in a number of areas likely will make supplies a bit less burdensome than last fall and winter. How much strength fall markets are able to generate and how long it lasts will depend partly on Australian and Argentine wheat crop prospects. As we went to press, wheat belts in both countries were quite dry and concern about El Niño was causing expectations of less-than-ideal crop prospects. Australia is the most important of these two countries, although the Argentine crop can be an important swing factor in wheat markets at times. Australia normally is one of the world’s top five wheat exporters. U.S. winter wheat acreage prospects, timeliness of plantings and late September to December rainfall also will be important market influences. It would not be surprising to see soft red winter wheat acreage decline modestly in the eastern Corn Belt, due in part to a very depressed wheat basis and a possible late corn and soybean harvest. After this year’s devastating Texas/Oklahoma drought, Southern Plains farmers would like to see a good soil moisture recharge before planting wheat. A dry fall might reduce hard red winter wheat plantings at least a little. Export sales of U.S. hard red winter and soft red winter wheat were off to a very slow start as we went to press. Hard red winter wheat sales and shipments to date were about 60 percent lower than a year earlier, along with a drop of 63 percent for soft red winter varieties. But, sales should improve in the weeks ahead |
Corn 
Frost watch is on for corn markets
Use and weather could make price upside for big corn harvest
by Dr. Robert Wisner
As you finalize fall storage and marketing plans, look closely at the USDA’s Oct. 9 and Nov. 10 crop production forecasts. Crop development this season has been the latest in many years across the Midwest, and crops in some areas have substantial risk of frost damage. Prospects for at least modestly profitable on-farm storage look favorable, and frost damage over a sizeable area would add upside price potential. The most critical areas are the Dakotas, northwest Minnesota, parts of Wisconsin and a sizeable part of the Corn Belt east of the Mississippi River. The harvest season likely will be longer than usual, and frost problems, if they occur, could make it a bit longer.
Two key demand indicators look positive going into the late fall and winter: 1) exports, and 2) ethanol. The third major demand source, domestic feeding, is clouded by months of very depressed dairy and livestock feeding returns. Corn exports should be well above a year earlier through at least late February or early March. That’s because of almost a 700 million bushel drop in last spring’s South American crop along with tentative forecasts showing significantly smaller feed grain crops than last year in Russia, the Ukraine and Europe. World wheat production also is expected to be down, thus reducing the stiff feed-wheat competition of the last year. Export prospects will be tempered some by global economic problems, but the sharp drop in competition should be more than offsetting. United States corn’s big competitors in world markets are South America and feed wheat. South American exports almost certainly will be quite small until at least late March or April of next year. How much they rebound will depend on weather in that region as well as exchange rates and Argentina’s export tax policy.
A number of new ethanol plants have come on line in the last several months and many of the bankrupt plants are back in operation. That should boost corn demand some, but the real key will be whether EPA approves E-15 blends for conventional vehicles. The odds of that happening look good. The decision is to be made by December 1. With E-15 blends, potential ethanol demand could increase by over 40 percent.
Dr. Robert Wisner is an agricultural economist at Iowa State University. Glenn Grimes is a MU professor
Soybeans
The answer is 42  Soybean harvest averaging more than 42 bushels dampens price potential As with corn, fall and winter bean prices will be sensitive to the timing of the first killing frosts across the Midwest. Beans are a little less sensitive than corn because their maturity is influenced by length of daylight hours, but this year’s extremely late plantings have created significant risk. Also, watch for USDA’s Oct. 9 and Nov. 10 crop reports. A U.S. average yield of 42.5 bushels per acre or higher would point to adequate to ample supplies for the year ahead, barring another South American crop disaster. A yield of 42 bushels or less would show the potential for moderate on-farm storage profits into early to mid-winter and possibly some profit potential for elevator-stored beans if you watch the markets carefully. South America is the world’s largest exporter of soybeans and soybean products. Its normal combined exports of beans and bean products are much larger than those of the U.S. But when you factor in a nearly 800 million bushel decline in last spring’s crop, that means a sharp drop in competition for U.S. soybean and soybean meal exports this fall and winter is almost guaranteed. Additionally, China appears to be planning on maintain a large reserve soybean inventory to ease inflationary pressures if there are world crop problems. Also, China looks as though it prefers to hold part of its financial portfolio in commodities rather than U.S. government bonds. The net effect of these developments is likely to be strong U.S. soybean and meal exports until at least late February, and possibly a month or two longer, even if South America has a good crop next spring. Domestic soybean crushings should be at least a little stronger than last year. Poultry and livestock feeding returns may improve modestly. Also, Argentina’s meal supplies will be limited until at least April or early May. Argentina normally is by far the world’s largest exporter of soybean meal. The exchange rate of the U.S. dollar also will be an influence on soybean prices. The huge federal budget deficit appears likely to contribute to long-term weakness in the dollar, thus encouraging exports. |
Cattle
Weak demand still rules
Way to higher prices is reduced herd
by Glenn Grimes
The seasonality in heavy weight feeder steer prices for 1999 to 2008 shows a low in February and a high in September (see graph). The winter low is due in part to low fed cattle prices and the September high is at least in part due to seasonally high fed cattle prices in the late fall and winter.
Beef and veal exports in May 2009 were down 4.2 percent from a year earlier. For January through May, beef and veal exports were up 2.7 percent compared to a year ago. January to May beef exports to Mexico were down 19.3 percent, to Canada down 13.1 percent, to Japan up 15 percent, to Taiwan down 13 percent, to South Korea up 3824 percent, to Vietnam up 66.6 percent, to Hong Kong up 24.2 percent, to Bahamas up 33.3 percent, and to other countries down 6.4 percent.
Net beef imports were 3.76 percent of U.S. beef production in 2008 but increased to 5.03 percent in January to May 2009. This is one of the reasons why demand for live fed cattle was down more in January to June than the demand for beef at the consumer level.
In June, U.S. choice beef prices at retail were 1.3 percent below May and down 0.4 percent from June 2008. However, the average choice beef retail price for January through June was 2.7 percent above a year earlier.
Beef processors and retailers gained the most from the higher retail prices in the first half of the year. The processor-retailer margin was up 11.8 percent in January to June compared to a year earlier. The packers’ margin was down 5.4 percent and the cattle feeders’ price was down 9.3 percent from these months last year.
On July 1, the total U.S. cattle herd was down 1.5 percent from a year ago. The number of cows in the herd was down 1.4 percent. The number of heifers being held for beef herd replacements was down 2.2 percent.
The number of dairy cows in the July 1 cattle herd was down 1.7 percent, but the number held for dairy herd replacements was the same as a year earlier. The dairy industry’s herd reduction program has reduced the dairy herd some, but the number of dairy heifers being held for replacements has to be disappointing as the industry tries to get milk production in line with demand and return milk prices to a profitable level.
The total cattle herd on July 1, 2009, was down 3.2 percent from the previous high on July 1, 2006. For beef producers to make a profit, some additional reduction in the herd is needed to get production in line with demand. Demand for beef at the consumer level for January to June was down about 1 percent from a year earlier. Demand for fed cattle was down 6.9 percent. The larger decline for fed cattle was due to a larger net import of beef and weak demand by the hotel and restaurant trade.
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