|By SUSAN K. DAVIS
LONDON, Ohio — Recent supply figures show the United States is expected to harvest the second largest corn crop on record.
However, market as if it were a short crop year, cautioned Ohio State grain marketing specialist Matt Roberts at the Ohio Farm Science Review on Sept. 20.
“As weird as this is … treat ’06 like a short crop year because we’re radically drawing down stocks,” Roberts said. “We will have the third-smallest ending inventories, as a percentage of use, since 1990.”
Treat marketing in 2007 as if 2006 were a drought year, Roberts suggested. In short crop years, highs are typically made between January and May.
“We could see a post harvest rally in December, January or February and a price peak in April or May,” he added.
U.S. corn consumption is expected to be 800 million bushels more than production.
“That’s what’s driving demand,” Roberts reported.
Ethanol fuels demand
To meet the needs of the growing ethanol production, 450 million bushels of corn will be needed in 2006-07 compared to last year. In 2007-08 another 300-400 million bushels will be required to fuel the ethanol market.
Storing corn and selling soybeans is likely to be a more profitable strategy, Roberts suggested. Those who have a crop that doesn’t have a home - corn or soybeans - the best way is to sell cash and re-own on the board and wait for a rally. Hold ownership and price in April or May.
Roberts suggests selling on the cash market and buying calls or futures contracts.
“The primary reason I expect to see a rally in soybeans this spring is acreage defense,” he said. “We could lose 3 million acres of soybeans.”
Because of high corn demand there will be competition for acreage next spring.
“We will need 3-5 million more corn acres this year than last,” Roberts said. “Where will the acreage come from? Primarily from traditional big corn producers.”
Roberts foresees soybean acreage moving to corn. As a result there could be less corn-soybean rotations and more corn on corn or corn/corn and soybeans.
“Ultimately what will happen is wheat will be pushed out of the Corn Belt. The strength we see in wheat is the first sign of an acreage war.”
Illinois growers won’t take acreage out of corn to grow wheat unless wheat prices are more profitable, he added.
Wheat market awry
Last year’s strong wheat prices spurred Ohio producers to plant more than 100,000 acres in anticipation of $3.80 to $4 soft red winter wheat prices. At harvest, local prices were about $3.10 to $3.15, which is 75-90 cents under the Chicago Board of Trade’s futures price.
“In the 26 years since OSU has been keeping records the highest basis was 44 cents,” Roberts reported.
The reasons for the wide basis include backlog are high diesel fuel prices, barges lost in Hurricane Katrina and congestion on the Mississippi River.
“The wheat market is broken - simply broken,” Roberts said, solemnly.
CBOT delivery points, such as Toledo, Chicago or St. Louis, are not taking wheat because of large wheat inventories, Roberts said. /p>
Storage constraints in the futures market aren’t discussed, he said.
“If you’re a wheat grower, the CBOT doesn’t reflect your market,” he said.
The basis situation has failed to improve in the soft red market, but it is gaining more notice in legislative and regulatory arenas (CFTC), he said. Ohio is the nation’s top soft red winter wheat state.
Roberts suggests wheat producers ignore the CBOT futures price for now and use local forward contracts.
“Start selling at $3.70 - if you happen to get it,” Roberts advised.
A factor that isn’t figured into the stocks equation is the Conservation Reserve Program. Removing acreage from CRP could help supply the needed corn acreage but also put pressure on prices.
“Next spring I’d be marketing the new crop heavily,” Roberts said. “If CRP comes out there is a possibility corn could be $2.40 based on July 2007 futures.”
This farm news was published in the Sept. 27, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.