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Corn prices good, but ending stocks tight, experts say
Assistant Editor

CHICAGO — The global outlook for corn, soybean and wheat production remains largely unchanged from February, according to the USDA World Agricultural Supply and Demand Estimates monthly report released March 9.

“I really can’t remember the last time I saw an agricultural report with such few changes,” said Dan Basse, president of AgResource, Inc., a Chicago firm specializing in livestock and grain market advice. He noted that “doldrums” in such a mid-winter report is not unusual, but March’s especially “didn’t really offer us much of anything.”

He and fellow analyst Greg Wagner, director of marketing risk management with Chicago’s Horizon Ag Strategies, briefly discussed this report at the Chicago Board of Trade last Friday.

Though South African corn stock projections fell off by 2.5 million tons because of drought and heat, South America made up that difference, with projections increasing from 46 to 48 million tons for Brazil and from 20 to 20.5 million tons for Argentina. Australia also saw a drop in corn, while India and the Philippines saw increases.

What Basse said this means for United States corn growers is not having to worry about a drop in prices anytime soon. He said to meet national demand alone, American farmers would have to produce 12.4 billion bushels this year – and the record is 11.8 billion in 2004, which he described as “an almost perfect growing season.”

In 2006, he explained the U.S. had its third-largest corn crop on record and still fell about one billion bushels short of domestic demand.

Between ethanol and feed demand for increased meat production, Wagner agreed U.S. corn prices are safe for now. “It took $5.50 corn in 1995 and ‘96” in demand rationing (raising prices in order to discourage demand) to narrow the gap between market demand and short supply, he said.

Basse explained demand for U.S. corn jumped in July 1996 only because China briefly stopped exporting into the world market.

“When we needed to ration demand, those prices had to go a lot higher than anybody had thought,” Wagner said. Basse believes corn prices will nudge up to $5 per bushel this year, thanks to ethanol production.

What really drives demand rationing is a crop’s ending stock, Wagner explained. The projected U.S. corn ending stock for March is 752 million bushels, or only about 6.4 percent of total consumption.

Because ending stocks are there to cushion against a bad year or other unforeseen problems with supply, he believes 6.4 percent is too tight. Traditionally, end stocks have been around 17 percent, which he described as “comfortable, more than adequate.”

U.S. soybean ending stocks for March are projected at 595 million bushels, 33 percent higher than in 2005-06 and a much higher percentage than corn ending stocks. USDA has lowered its projections for soybean exports because of high production and favorable growing conditions this season in Brazil.

The report continues to forecast U.S. season-average farm prices for corn at $3-$3.40 and wheat at $4.20-$4.30. The forecast for U.S. soybeans is $6.10-$6.50, which is an increase of 20 cents over February’s projection for the low end of that scale.