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

February 25, 1999

The Market Advisor: Impact of Potential
Production on Crop Markets

George Flaskerud, Extension Crops Economist
NDSU Extension Service

Planted acres and then yields will become more and more important to the market as current marketing years come to a close. Acres in addition to yields are highly uncertain. Acres are especially uncertain this year because of government and insurance programs.

Further decreases in spring wheat acres are likely as acres are shifted into oilseeds because of favorable loan rates, although crop rotations will be a limiting factor. Some spring wheat acres may be shifted into durum because of crop revenue coverage insurance, but a small shift is anticipated given the potential for higher returns from spring wheat. Consequently, durum acres may increase by a small amount over last year.

Combining the reduction in spring wheat acres with the reduction in winter wheat acres, total wheat acres should be down enough that carryover stocks will become more manageable. By the end of the current marketing year on May 31, wheat stocks are projected to be 41 percent of total use, according to USDA's February Supply and Demand Report. By the end of the next marketing year on May 31, 2000, wheat stocks are likely to be in the 29- to 36-percent of total use range. The percentage realized will depend primarily on yields. Reduced ending stocks should result in stronger wheat prices. USDA's Planting Intentions Report will be released on March 31.

"Increasingly, the price of corn and soybeans will take direction from 1999 crop prospects," Darrel Good says in a Feb. 22 newsletter. The University of Illinois extension economist goes on to point out, "It appears that a reduction in yield will be required to turn prices higher, particularly for soybeans. The list of negative market factors for soybeans is extensive.

Disappearance of 1998 soybeans currently is falling behind the USDA projection. A strong U.S. dollar, the weak Brazilian currency, and a potential record-setting harvests in Brazil and Argentinian favor South American soybeans and meal later this spring. As a result, Good feels, and I agree, that ending stocks for U.S. soybeans could come in well above the current estimate of 410 million bushels.

Meanwhile, price and weather will determine how many soybeans go in the ground in the United States this spring, but increased plantings appear to be a near certainty. The real question is, how many U.S. soybean acres will there be in 1999?

The number of cattle on feed in January helped corn, but Good characterizes fundamentals as being unfriendly, a position I take as well. Increased feeding of soft red winter wheat and the continued liquidation of breeding hogs are adding to the softness in demand for corn as feed. Continuing strength of the U.S. dollar will reflect negatively on corn exports, but ending stocks for corn should be modest, and there may be a small drop in corn acreage this year.

When it comes to weather factors, Good reminds traders and producers that it's summer weather, not spring weather, that drives prices—especially for soybeans. Based on current weather forecasts for drier-than-normal conditions in western areas of the Corn Belt, a trouble-free planting season may push any potential weather rallies off for several months. Good says another year of trend yields would likely result in further price weakness.

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Source: George Flaskerud (701) 231-7377

Editor: Dean Hulse (701) 231-6136