Corn Stocks

Don’t expect corn prices to flirt with $3 anytime soon.  An increase in planted acreage and excellent growing conditions has the stars aligning for a record U.S. corn crop, estimated at over 10.6 billion bushels, up over 500 million bushels from last year. The anticipated increase in U.S. corn supply will weigh on price. 

Still, consumption will remain strong, buoyed in part by ever-increasing ethanol usage. U.S. corn ending stocks in 2004-05 are forecasted higher than in 2003-04, but course grains stocks as a whole still remain tight, which along with steady use should keep corn prices from falling significantly.  Continued prospects for excellent production could shave another dime to 15 cents off the corn price into early September. However, a late crop and frost concerns in the Northern Plains could have modest rally implications this fall.  Further, a current carry of about 15 cents between Dec 04 Chicago and July 05 corn futures, combined with a historical improvement in local basis of about 15 cents from harvest into June, signals price opportunities early next summer, and justification for storage. 

Hopefully, you’ve made some good pre-harvest sales when the corn price was attractive last spring.  A cash price that bounces back over $2.50 would be a trigger point for making additional sales. Evaluate returns to storage, and consider a hedge, cash forward contract or hedge-to-arrive contract in July ’05 Chicago futures with delivery planned for next June.

Wheat Stocks

Note the projected 22.8% stocks-to-use ratio for wheat in the USDA July report, and where that might place Chicago wheat futures on the curve in relation to other S/U estimates in the past 10 years.  Stocks-to-use is a ratio that measures projected crop use (demand) versus crop available (supply).  USDA forecasts wheat acreage in the U.S. to be 3% less than last year, harvest acreage 4% less, and all-wheat production about 12% less than 2003. However, a decrease in U.S. supply is forecast to be offset in part by a decrease in exports.

World wheat carryover stocks aren’t forecast to change much in 2004-05 compared to 2003-04. Wheat production increases are forecast most notably in the European Union, Russia, and the Ukraine, all U.S. wheat export competitors.  Overall, wheat production in 2004/05 is forecast to be about 9% more than in 2003/04, with global ending stocks forecast to rise slightly and world imports to hold steady. Thus, it appears that the wheat market will have its share of modest ups and downs, but that the outlook at this point for a relatively stable world supply suggests no significant price trend either way, barring unforeseen demand or supply factors in the market. In other words, with a somewhat bullish picture shaping up for U.S. supply/demand, not a bad wheat price. But with a somewhat bearish picture forecast for global supply/demand, not a great price either.

Soybean Stocks

Coulda, woulda, shoulda. Hopefully, a good number of soybean growers priced a significant share of their new-crop soybeans when prices were hovering at $10 this spring. But chances are there’s a good many who wished they woulda priced more – especially given the price outlook going into next winter.

The new U.S. soybean crop is expected to increase 2004-05 supply and ending stocks to more comfortable levels. And with another record soybean crop anticipated around the corner in South America, there’s a sense in the marketplace that soybeans were overvalued and that there will be enough supply to meet demand.  Thus, the reason for the price reversal and bearish tone that seems to have settled into the soybean market.

There are some concerns about Asian rust in South American soybean production, but that’s tempered by the trade’s perception that the problem will be contained.  And even if there are some problems, there should still be enough beans to go around.  Last spring’s run-up in price was a result of extremely low U.S. carryover and tight stocks.  That shouldn’t be a problem next spring.  An increase in supply expected from both the U.S. and South America should keep prices from rallying to levels seen this past spring.

A storage hedge into next spring doesn’t seem profitable.  November Chicago soybean futures at around $6.25 to $6.30 would seem to be the most realistic price range to be expected at harvest, with downside risk into the $5 range if the large crop expected for South America materializes.  A weather scare or other factor that would push Nov beans back to around $6.75 should be viewed as a new-crop selling opportunity. If you want to speculate on weather or production problems in South America resulting in unforeseen rallies this winter, consider using part of what the cost would be for storing beans on buying call options three strikes out-of-the-money.