Markets
by Dr. Robert Wisner

Corn
Shifted corn acres, tight supplies

Look for continued high volatility in prices into at least the second or third week of June as the market responds to weather and crop conditions here and abroad. If you have a substantial amount of unsold old-crop corn and/or would like to sell additional new-crop that you’ll need to move at harvest, consider offer contracts at several price levels modestly above current markets.

The most important influences on corn prices in the next several weeks will be 1) USDA weekly crop condition reports—including the percentage of the crop rated good to excellent; and 2) USDA’s June 30 planted acreage and grain stocks reports. Crop condition reports are released every Monday afternoon, except on government holidays.

If farmers have planted the 86 million corn acres shown by the March intentions survey (down 7.6 million acres from last year), a normal yield would create a need to reduce combined domestic feeding and U.S. corn exports by about 1.5 billion bushels or 15 percent to 17 percent from the current 2007-08 marketing year. If U.S. farmers shift only half as much acreage out of corn as they intended to in early March and yields are normal, that would reduce the needed cut in corn feeding and exports by about a third. That acreage and yields 5 bushels above trend would require approximately a 9 percent to 10 percent reduction in combined U.S. corn feeding and exports. The needed reductions would be to make adequate corn supplies available for new ethanol plants that will be coming on line in the next 15 months.

Indicated winter quarter corn feeding was sharply above a year earlier, reflecting large livestock and poultry numbers and heavier-than-normal marketing weights. We expect March to May corn feeding numbers to be at least modestly above a year earlier. Barring surprises in the June 30 report, corn prices will be sensitive to any extended periods of hot, dry weather across the Corn Belt. Weather concerns tend to strengthen the old crop basis.

Soybeans
Much rides on the June 30 report

As with corn, USDA’s weekly crop condition reports and the June 30 planted acreage and grain stocks reports will be key market indicators. The grain trade will be watching to see how farmers responded to the 20 percent to 25 percent drop in new-crop soybean prices and strength in the corn market after the March intentions and stocks reports were released, which changed the soybean market outlook for next season from being extremely tight to just moderately tight.

At this writing, the grain trade believes about 3 million intended soybean acres will be shifted back to corn in the June 30 report. That would be expected to require about an 8 percent cut in U.S. soybean exports in the year ahead. Prices would have to be high enough to slow exports by that amount and also encourage increased South American plantings this fall to compensate for what looks like a probable U.S. shift from soybeans to corn next spring. The June 30 grains stocks report will be more important than usual. Grain users and traders will be watching to see whether it confirms earlier indications that last year’s crop may have been under-estimated. As we went to press, expectations of a 40 to 60 million bushel under-estimation of the 2007 crop appeared to be discounted into prices.

With normal yields across the U.S. Soybean Belt and acreage plus stocks near trade expectations, we would look for cash prices in Missouri and southern Iowa to be in the $8.30 to $9.50 range at harvest. Modestly higher prices would be expected at river elevators. But with rapid growth in world demand for soybeans and soybean products and a probable 2009 corn vs. beans struggle for acreage, any serious weather or disease concerns could quickly push prices above these levels.

Wheat
A good year may take some stress out of the market

Although wheat prices will continue to be volatile, we may see modest weakness in both hard and soft wheat prices in late June and July in response to increased availability of new-crop wheat. New-crop supplies will be available in parts of India, China, Pakistan, the U.S. and other areas. Supplies from other Northern Hemisphere countries will become available a little later in the summer.

World wheat stocks going into harvest are the lowest in decades, if not the lowest on record. However, early indicators show prospects for sharp increases in production in Europe, former Soviet republics and other areas. Some projections we’ve seen call for double-digit percentage increases in parts of this geography. The anticipated increase in Europe comes from a combination of better weather and release of the EU 10 percent set-aside land. Part of the EU set aside is being used for oilseeds to support its extensive bio-diesel program and part probably will be used for feed grains. Other very important areas wheat traders will monitor include the United States, Canada, China, Australia and Argentina. Australia and Argentina harvest their wheat in November and December because they are south of the Equator. Australia has had two back-to-back droughts, which sharply reduced its production and exportable supplies.

USDA’s June 10 forecast of U.S. winter wheat production is expected to show a modest increase over last year’s crop, with disappointing yields in Texas and Oklahoma slightly tempering the national yield.

Dr. Robert Wisner is an agricultural economist at Iowa State University.

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