NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665

November 19, 1998

The Market Advisor: Implications of November Supply and Demand Report

George Flaskerud, Extension Crops Economist
NDSU Extension Service

May wheat futures in Minneapolis has improved 48 cents since its low of $3.26 in August. Part of the reason for the improvement is USDA's donation program. In USDA's Supply and Demand Report released Nov. 10, wheat exports for the marketing year were raised 75 million bushels. The price also improved because private surveys are indicating another sharp reduction in wheat acres for 1999.

Bring wheat sales up to two-thirds of production by using a hedge-to-arrive (futures-fixed or basis-open) contract in the May Minneapolis futures. While the current basis has improved, it is still poor. It may not improve to its historical average, but it is unlikely to get worse.

The corn market continues to signal storage. The difference in futures prices between December and May is enough to cover the cost of storage. The basis for corn, like wheat, is also currently weak. Any improvement would add to storage profits.

Barley prices should tag along with corn prices. A significant price increase in the feed barley price cannot be expected since European Union (EU) barley stocks are large. USDA is projecting that Saudi Arabia will sharply increase barley imports and that the barley will come from the EU. The premium for malting barley could improve since U.S. and Canadian barley stocks are down from a year ago.

Soybean prices got a boost from USDA's report. Soybean production was reduced instead of increased, as many in the trade expected. USDA says that late summer dryness reduced yields, especially in southern growing areas. Fortunately for North Dakota producers, the soybean price is now headed in the right direction. Production in North Dakota increased from 34.5 million bushels last year to 52.4 million this year.

The May futures soybean price has increased from a low of $5.40 in August to $5.90 on Nov. 9. The next major factor involves South American production. USDA is projecting that production in Brazil will be down 6.5 percent from a year ago.

Target the January/February period for making soybean sales. That is the critical growing period for South America. Their soybean yield was considerably above trend this past year. Their yield has been above trend during five of the last seven years. Can their good fortune continue?

Sunflower and canola prices should increase into the April/May period as usual. Soybean oil stocks were increased by USDA mostly because of increased crush to fill obligations to Russia. On the other hand, Malaysian palm oil stocks are expected to fall considerably into spring, according to the Nov. 6 issue of Oil World, a weekly trade publication produced in Hamburg, Germany. The net result is that the Oil World publishers are expecting vegetable oil prices to increase into spring to ration limited supplies, although they recognize that how much rationing needs to be done will depend on Southeast Asia demand.

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Source: George Flaskerud (701) 231-7337

Editor: Dean Hulse (701) 231-6136