By ANN HINCH
Assistant Editor WASHINGTON, D.C. — Compared to widely fluctuating futures prices of two years ago, the grains and soybean commodities market may seem more stable, but there are a number of factors that could give it a volatility higher than usual through this fall.
Last week, the USDA released its monthly Crop Production and World Agricultural Supply and Demand Estimates reports, with Sept. 1 data and estimates. Record national harvests are still expected for corn and soybeans, at 13.16 billion and 3.48 billion bushels, respectively.
The average expected soybean yield of 44.7 bushels per acre would also be a record, though 162.5 for corn is slightly below the record set in 2009 (mostly due to yield reduction estimates in the eastern Corn Belt). In Iowa, the country’s single biggest soybean-producing state, yield is estimated at 52 bushels – but this is not a sure factor.
Randy VanKooten, Iowa Soybean Assoc. (ISA) president and a Lynnville farmer, said in a statement, “I am skeptical of the predicted yield increase, considering the massive outbreak of SDS (Sudden Death Syndrome) we’ve seen in parts of Iowa and other states. What I’m hearing from early reports on soybeans already harvested is that yields are lower than expected.
“But,” he said of another factor, “even if the areas not affected by SDS are so much better that they offset the badly impacted areas, the story still is that worldwide demand remains strong, as evidenced by USDA’s lowering the 2010 and 2011 stocks carryover.”
The USDA did lower its United States 2010-11 ending soybean stock estimates by 10 million bushels, to 350 million (market analysts were predicting 285 million), from its August estimate based on early-season sales and “a projected increase in global import demand,” especially to China.
The Hightower Report co-founder Terry Roggensack, however, said the USDA is estimating that its export rivals Brazil and Argentina will produce fewer soybeans in 2011 – but, according to preliminary reports he’s heard, Brazil intends to plant as many acres as last year. Reports also show Argentina farmers expect to exceed last year’s planting.
“There’s a tendency to look at (export) numbers and say that demand is a given,” said Advance Trading commodity research analyst Brian Basting. “And demand can change.”
“Counting on bad weather (in South America, in this case) is typically not a good strategy for a rally,” Roggensack added.
Possible feed need
Roggensack pointed out China imported U.S. corn this year, for the first time in many years. In the past, China has grown enough corn for itself and even exported, but its exports had been dropping. USDA numbers don’t yet show the country as a sizable corn importer, but he noted its feed demand has been rising in the last decade even though the country’s corn production is not increasing.
“The question now becomes, do we see an increase in (U.S.) corn exports?” asked Basting.
Feed use is another factor. The USDA lowered its estimate of domestic corn use this month by 100 million bushels because of less feed and residual use “as higher prices trim feeding demand.” Its projected domestic use of wheat as feed stayed the same.
Basting said there doesn’t seem to be any push toward expansion of livestock in the U.S., just stabilization of herd numbers. If the market continues to rally – and the USDA did raise its estimate of season-average price for corn this month, from $3.50-$4.10 per bushel, up to $4-$4.80 – he said it might further lower demand for corn for feed.
Soybeans and wheat, too, received a season-average boost in USDA estimates this month. Soy meal is estimated at $270-$310 a ton, $20 higher on both ends than in August, and wheat was raised from $4.70-$5.50 per bushel, to $4.95-$5.65.
Helping keep livestock demand low, said Basting, could be continued use of dried distillers grains.
He speculated beef cattle producers seem set up to be the first sector to cut back on feed use based on price. He ranked dairy and hogs second and poultry, third, explaining it’s the sector that seems to have healed the most in increasing production compared to a year ago.
Roggensack was more hopeful. “I do not see the serious impact in any reduction in livestock numbers, going forward,” he said, adding that producers might just be holding back on breeding stock for now and that demand may still go up a little later.
As for ethanol use of corn, growers and plant owners are waiting on the U.S. Environmental Protection Agency (EPA) to decide (supposedly soon) whether to raise the “blend wall” from 10 percent ethanol in all gasoline to 12 or 15. Roggensack said there’s a good possibility the EPA will do so, but that Congress might drop ethanol blender credits at the same time.
Basting agreed. He said the price margins for ethanol have “come back nicely lately” and that this might require a tradeoff from Washington. Right now, he believes corn futures are counting on a sustained increase in ethanol production in 2011, possibly also 2012.
“We’re in a world where what comes out of Washington is more uncertain than normal,” Roggensack said.
Boost for wheat
Wheat news this time of year normally takes a back seat to corn and beans, since this region – which produces winter wheat – is poised between completed harvest and fall planting. But, with reports of shortages in Russia and some European countries, the market has seen recent increases for U.S. wheat prices.
That’s one factor to keep in mind. But another, according to Basting, is how the USDA noted a global increase of 3 million metric tons in wheat stocks between August and September despite those shortages. This is also more than ending worldwide stocks of just under 125 million for the 2007-08 marketing year. “I think the wheat market is not nearly as tight as it was three years ago,” he said.
As for soybeans and corn, this month’s USDA 2010-11 ending stocks estimate for both was higher than analysts predicted – 902 million bushels of wheat, compared to 877 million expected. Corn’s is 1.116 billion.
Roggensack said he can easily see a 10 percent jump in U.S. winter wheat planting this year, and believes planting will also go up around the world. Basting agreed, noting both the weather and market may be more hospitable this fall; in fact, he said a good strategy might be to plant wheat and double-crop in 2011 with soybeans.
“We could see one of the biggest increases in (growing) soft red winter wheat we’ve ever seen,” he added. |
