By ANN HINCH
Assistant Editor

CHICAGO, Ill. — The crazy weather of 2008 didn’t much curtail farmers’ production of primary commodities corn, soybeans and wheat, according to the year-end crop summary published by USDA earlier this week.

It certainly beat industry estimates. Year-end figures reflected 12.1 billion bushels of corn was harvested nationwide, as well as 2.96 billion bushels of soybeans and 2.5 billion bushels of wheat. Corn was down 7 percent from 2007 – though still higher than expected for 2008 – but soybeans and wheat were both up sharply.

“I think the (20)08 crop surprised us all around,” said Brian Basting of Advance Trading. He explained based on the November USDA crop report, not to mention the late planting and weather difficulties of last summer, market analysts had predicted lower production.
National yield for corn was up 3.2 bushels per acre over 2007 and up 4.7 bushels for wheat (soybeans were down 2.1 bushels).
Basting noted “improved genetics is something that is giving us an increase in yield” as well as stamina against otherwise challenging weather.

Joe Victor, vice president of marketing for Allendale, Inc., said his biggest surprise was in corn stocks. According to the USDA, U.S. ending stocks for 2008 were 1.79 billion bushels, about 300 million more than analysts expected. Domestic wheat stocks were also up about 47 million bushels over expectations, at 655 million, as were soybeans at 225 million bushels. Expectations were for closer to 188 million bushels of soybeans.

Global wheat production was prolific last year and often replaced more expensive corn and soybeans as livestock feed. Too, ethanol demand for corn went down with the price of oil in 2008, as profit margins started to turn negative – Basting pointed out the USDA has reduced demand outlook for corn for ethanol by 400 million bushels in the last two months.

As for exports, he said U.S. corn is down 800 million bushels from a year ago. U.S. soybeans, however, despite being a larger crop than expected for 2008, grew stronger in global demand. He qualified this by pointing out soy crush went down, likely because of feed substitution of wheat worldwide.

“The soybean market is carrying the corn and wheat market at this point in time,” Victor said, adding China increased its demand and, in fact, can now buy U.S. beans more cheaply than from its own farmers.

He and Basting speculated weather and political events in South America will be important for U.S. soy exports. Farm groups in Argentina have protested and continue to dislike a new 35 percent export tax, and a dry growing season has lowered the USDA’s production expectations in that country as well.

Nearly 86 million acres were planted to corn across the U.S. last year. Victor said the industry as a whole – farmers, seed companies, analysts and the like – have broad speculation for spring planting of between 80 million-90 million acres. “That’s how much unsureness there is right now,” he explained.

His firm, however, has a narrower prediction of between 87 million-89 million acres, partly because of a drop of 4 million acres of wheat planting from last year.

Basting expects cotton planting will be down in the Delta region, spring wheat planting could be down in Plains states and he said there is some Conservation Reserve Program (CRP) land coming out of contract in 2009.

“The big thing we learned in 2008 is volatility in these markets,” Basting said, recalling wide swings for commodities futures. “Will we see as much volatility in 2009? Probably not.”

He expects March corn will settle between $4.25-$4.50 and no higher, while soybeans could break $10.50 or $10.75; again, he cited the South American soy harvest as key in short-term performance. Victor speculated beans could go as high as $12.25 in 2009 and while he wouldn’t settle on a corn prediction, he did keep it above $4.

“That’s what happens,” Victor said of a more bearish market, especially for corn and wheat. “High prices globally cure high prices.”

State data

Following the national trend, corn production was down in 2008 from the previous year in Illinois, Indiana, Iowa, Ohio, Kentucky and Tennessee. Ohio saw the biggest relative decline in production, at 22.2 percent. Kentucky, Indiana and Tennessee all saw declines in the 11 percent range.

This was partly because of weather damage, but also because farmers planted fewer acres to corn than in 2007. Michigan also planted fewer acres, but actually saw a 2.6 percent jump in production for 2008, thanks to an improved yield of 15 bushels per acre.

Soybean production nationwide was up over 2007, as it also was in Illinois, Indiana, Kentucky and Tennessee. Tennessee saw the biggest single gain over 2007 with a 158.7 percent increase over and above. To be fair, this was just a little more than the state produced in 2006, since in 2007 a severe drought ruined crops.
Ohio saw the biggest drop in production of the seven states, with a 19 percent decline, followed by Michigan and Iowa with much more modest declines.

All seven states saw big percentage increases in wheat, keeping to not just the national trend but also the global outlook. The biggest increase was in Tennessee, at 207 percent over what was grown in 2007. Kentucky was another big jumper, producing 172 percent more than it grew in 2007. Indiana saw a jump of nearly twice, at 86.5 percent more harvested in 2008.