August 15, 2003

 

Market Advisor: Outlook Improves for Crop Prices

By George Flaskerud, Crops Economist
NDSU Extension Service

Production as well as U.S. and world ending stocks of wheat, corn and soybeans were below trade expectations, according to a supply and demand report released by USDA on Aug. 12. In addition, drought continues to creep into the corn belt and winter wheat area. Wheat and especially corn and soybean prices moved higher during the day of the report.

The Minneapolis December spring wheat contract closed at $3.83 on Aug. 12. The last time the price was this high was on May 16 when it closed at $3.85. Getting up to a third of the crop sold at this price should be considered since higher prices are not a sure thing. If prices do move higher, the price level to watch is the contract high of $4.24 which is a profitable price level for many farmers. These guidelines would also be appropriate for durum producers.

USDA projected an average farm price of $3.10-$3.70 for wheat, up 30 cents from a month ago. Reduced production and import prospects reduced projected supply by 29 million bushels while total use increased by 65 million bushels. Predicted exports were increased by 75 million but food use was reduced by 10 million. These changes reduced the stocks/use ratio by 5.2 points to 28.9 percent.

December futures on the Chicago Board of Trade are trading at a price level that would suggest a stocks/use ratio that should be closer to 20 percent. Will exports exceed USDA expectations or will the price diminish? World production is expected to be down from a year ago but that information may already be factored into the market.

World wheat production was down 11 million tons from a month ago. Production was down 5 million tons in the European Union (EU), 3 million tons in Canada, 2.7 million tons in Eastern Europe and 1 million tons in the Ukraine.

Most of the adjustment in Canada was reflected in smaller ending stocks. On the other hand, larger imports are expected by Eastern Europe and the Ukraine.

World trade was down from last month due to larger production and smaller imports by Brazil, Iran and North Africa. Relative to a year ago, imports by North Africa were down 4.8 million tons or 27 percent. This means weak world demand for durum.

Even though it has been dry in southern Saskatchewan, Canadian durum supplies are expected to increase by 8 percent over a year ago, according to Ag Canada (Aug. 8). The Canadian durum crop is expected to increase by 12 percent to 4.2 million tons, exports are expected to increase from 3 million tons to 3.4 million tons and carry-out stocks are expected to decrease by 100 thousand tons to 1.4 million tons.

Durum production in the U.S. was reduced by 6 million bushels and so were ending stocks since other supply and demand factors remained the same as a month ago including imports of 30 million bushels. The August durum yield per harvested acre decreased 2 bushels to 27 in North Dakota and 4 bushels to 25 in Montana.

U.S. spring wheat production was reduced by 7 million bushels from last month’s projection and imports were reduced by 14 million to 40 million giving a supply reduction of 21 million. Total use was increased by 6 million; thus ending stocks were reduced by 26 million. The August spring wheat yield estimate remained the same as a month ago at 36 bushels for North Dakota, increased 4 bushels to 48 for Minnesota, increased 1 bushel to 39 for South Dakota and decreased 5 bushels to 24 for Montana.

The December corn contract closed at $2.29 on Aug. 12. As for wheat, consider selling a third of the crop if that level of sales has not already been achieved. If prices do move higher, the price level to watch is the mid-May high of $2.53. When selling, evaluate returns to storage. If storage looks profitable, sell in the July 2004 futures, either directly or with a hedge-to-arrive elevator contract. As of Aug. 12, the returns to storage are questionable.

USDA projected an average farm price of $2-$2.40 for corn, up 10 cents from a month ago. Production came in below the range of trade estimates but the decrease was partly offset by decreased exports. Although the European Union and Eastern Europe are expected to increase imports due to smaller crops, their needs are expected to be met by Brazil and China. The stocks/use ratio deceased from 13.5 percent last month to 12 percent for the U.S. and from 13.4 percent to 12.4 percent for the world.

The December futures is trading at a price level historically consistent with the projected stocks/use ratio for the United States. If stocks remain tight, the futures contract could trade in the range of $2.30-$2.50.

The November soybean contract closed at $5.46 on Aug. 12. Using this rally to get two-thirds sold looks like the best bet with a plan to complete sales by harvest. Storage does not look profitable. Brazil’s expansion is expected to continue. If prices do move higher, the price level to watch is the mid-June high of $5.88.

USDA projected an average farm price of $4.55-$5.55 for soybeans, up 20 cents from a month ago. Production came in below the range of trade estimates, beginning stocks were reduced and exports were increased as world demand continues to grow. The stocks/use ratio decreased from 9.3 percent last month to 7.9 percent for the United States and from 19.6 percent to 19.1 percent for the world.

For the current U.S. stocks/use ratio, November futures reflect a risk premium for weather. Since soybeans are in a critical phase of production, August growing conditions are crucial.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu