NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
November 18, 1999
George Flaskerud, Extension Crops Economist
NDSU Extension Service
Use any small price rallies to get caught up on wheat sales--up to two-thirds sold during November on spring wheat and durum. An abundance of wheat is likely to keep a lid on prices. Use the minimum price contract or call options to gamble on weather in the winter wheat states. In the November Supply and Demand Report, USDA analysts projected a seasonal average farm price in the range of $2.45 to $2.55, down 10 cents at the top end from a month ago.
Ending stocks of U.S. wheat continue to grow; the exception is durum, according to the USDA report. Durum production was reduced 10 million bushels (9 percent) while other supply and demand factors for durum were left unchanged. Exports of other classes of wheat were reduced by 25 million bushels--10 million for hard red spring and 5 million each for hard red winter, soft red winter and white.
Increased competition has cut into wheat exports. In the USDA report, production was increased 1 million tons in Canada, 1.3 million tons in Argentina, 500,000 tons in Australia, and 3.5 million tons in Kazakstan. On the demand side, global imports were increased only slightly.
It will take a substantial decrease in production next year to move the wheat price significantly higher. According to my analysis, a repeat of the lowest yield in the last 10 years--28 bushels per planted acre--would require little or no rationing of use and still leave the stocks/use ratio around 26 percent, versus 42.5 percent this year.
The outlook for corn is about the same as for wheat: in effect, too much corn. Use small rallies to make sales but sell in the deferred futures. I would pick July. This can be done in a hedge-to-arrive (futures fixed) elevator contract or directly in the futures market. Gamble with options. USDA analysts projected a seasonal average farm price in the range of $1.60 to $2, down 5 cents overall from a month ago.
Another 70 million bushels were added to the U.S. corn crop in the November report. Production was also increased 16 million bushels for sorghum but reduced slightly for barley and oats. Global production of coarse grains was increased slightly.
Looking ahead to a year from now, my analysis shows that a repeat in the year 2000 of the lowest yield in the last 10 years--98 bushels per planted acre--would require some rationing of feed use. On the other hand, a more normal yield would leave the stocks/use ratio about where it is for this year, at 21.9 percent.
The best strategy for soybeans may be to wait for a 20- to 30-cent bump in the local cash price. Then lock in the posted county price and sell on the same day as the bump.
Getting a bump in the soybean price will require a weather scare in South America. The U.S. yield was reduced slightly from last month, thereby dropping the production estimate by 23 million bushels. But reduced crush and export projections resulted in an increase of 10 million bushels in ending stocks. USDA analysts projected a seasonal average farm price in the range of $4.60 to $5.10, down 15 cents overall from a month ago.
Global oilseed production was projected at a record 297.1 million metric tons, up 1.6 million tons from a month ago. Increased South American planting and production prospects are responsible for most of the gains. Also, Canada and the European Union had record rapeseed crops.
There is risk in holding soybeans unhedged if the loan deficiency payment has been taken. A normal South American crop and a normal U.S. yield next year would likely result in a higher stocks/use ratio for next year's crop, which could exceed 20 percent, versus 15 percent for this year. On the other hand, a repeat of the lowest yield in the last 10 years--31 bushels per planted acre--would require higher prices next summer to ration use.
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Source: George Flaskerud (701) 231-7377
Editor: Dean Hulse (701) 231-6136