2002 SDSU Commodity Price Outlook Draws Four Conclusions

The 2002 Commodity Price Outlook held recently at South Dakota State University came to four conclusions:
1) weather will help shape wheat prices;
2) U.S. yields and China trade will be price factors in corn and soybeans;
3) the market is demanding more hay;
4) and the heifer replacement trend will play a role in beef prices.

Weather Will Help Shape Wheat Prices
Weather will likely be the biggest factor helping to shape wheat prices in a marketplace where demand looks “lackluster,” said George Flaskerud, NDSU extension grain marketing specialist.

Flaskerud estimated that if his projections hold true—including a 3% decrease in spring wheat seedings and yields in line with the five-year average—spring wheat this coming fall could bring $3.20 a bushel on the Chicago Board of Trade and perhaps $3.30 to $3.40 a bushel in Minneapolis on the December futures contract.

U.S. Yields, China Trade Will Be Factors in Corn, Soybeans
Corn yields likely will be the most important component affecting corn prices in 2002, while China’s decision on how much soybeans to import will be a key factor driving soybean prices.

That’s according to Roger Krueger, director of grain marketing for Aberdeen-based South Dakota Wheat Growers. Krueger is projecting CBOT prices at harvest this year to be at $2 for corn and $4 for soybeans, though bull or bear market conditions could drive those numbers higher or lower.

The corn market has greater potential to improve than soybeans, Krueger said, because the United States continues to hold its place as the only major exporter of corn. Even a four-bushel difference in yields can make a big difference in prices, Krueger said, adding that his projections are based on an estimated nationwide average for 2002 of 139 bushels an acre.

However, U.S. soybean producers face an increasing challenge from farmers in South America, where production continues to expand and is expected to equal or surpass North America’s production in the next two to three years, Krueger said.

He added that for corn producers, weather may not be the limiting factor that it once was, given new technologies and hardy, high-yielding varieties of corn. Krueger said 2001 presented the third-worst growing conditions on record for U.S. corn producers, who nevertheless produced the second-best corn crop on record.

Hay Analyst Sees Bright Future
Increased beef and dairy production and strong horse inventories are among the reasons this is a good time to be a producer with hay to sell, said Thomas Morgan of Morgan Consulting Group Ltd., Olathe, Kan.

Morgan, the founder of the Internet-based business Forage.com, said the demand base for hay continues to grow, with demand for hay relative to corn at record levels and hay acreage now exceeding that of all other crops except corn and soybeans. Hay prices are at record high levels relative to corn in many places, he said, and dry conditions may further strengthen demand.

Horse owners continue to provide a valuable niche market for hay across the nation. “Practically everyone is selling to some horse people somewhere,” Morgan said, but added that hay-processing equipment is not often designed with that market in mind. Eighty-pound square bales might be fairly standard in the industry, Morgan said, but 40 pound bales would be twice as marketable—and might become commonplace if hay producers can demonstrate to equipment makers the importance of the horse market.

Heifer Replacement Trend Will Play Role in Prices
Ranchers’ decisions on whether to keep their heifers as herd replacements or send them into the feedlots will play a role in prices this year, according to Matt Diersen, SDSU risk and business management specialist.

Diersen said the current cattle cycle is now in its 13th year, or longer than a typical cycle, which lasts in the neighborhood of 10 years.  “In this current case, we just haven’t had a chance yet to expand the cow herd,” Diersen said.  “We may be at a period where we could still see some expansion this year or maybe we won’t.  We’ll have to wait and see how many heifers end up being placed on feed. This will have a direct impact on the prices we’re likely to see this year and in coming years.”

“The impact this year will be whether or not heifers are held back from this time forward. If they go into the feedlots, we’ll expand the supply available for market-ready animals and that will keep prices depressed at probably close to last year’s levels. If more of those heifers are held back and used as replacements to expand the cow herd, we could see an increase in price probably throughout the year.”

Diersen said the USDA has revised its estimates downward recently because it didn’t see a large number of replacement heifers going into herds.  For slaughter steers, USDA has been projecting prices in the range of $67 to $69 a hundredweight for the first quarter, which is already half over.

“For the second quarter they’re looking at $72 to $76. That would be fairly well in line with what the current futures market shows,” Diersen said. “We get out into the third and fourth quarters of 2002, they’re looking at prices anywhere from $74 up to $81. Those price levels on average would be about $5 higher than the current futures market is showing.”