November 13, 2003

 

Market Advisor: Supply and Demand Report Near Expectations, So Why Not Sell?

By George Flaskerud, Crops Economist
NDSU Extension Service

Trade expectations differed little from the ending stocks projected in the Supply and Demand Report released by USDA on Nov. 12. Crop prices following the report continued to be influenced mostly by export rumors and dryness in the hard red winter wheat area.

Given the neutral report, why not take advantage of current favorable prices? Spring wheat futures prices are almost as high as they were in August. Corn futures prices have recovered about half of recent losses. And soybean futures prices are more than $2.50 higher than they were just three months ago. For many producers, these prices are profitable. If prices should move higher, begin selling 2004 production. In the case of soybeans, keep in mind that short crops tend to peak early.

Consider using call options to deal with the uncertainty of weather and exports. Wheat prices are not likely to hold if the winter wheat area gets rain or anticipated exports fail to develop. Corn prices could slip if China continues to be active in the export market. Soybean prices could also retreat once the South American crop gets closer to harvest.

In the USDA report, wheat exports were increased by 25 million bushels relative to a month ago and ending stocks were reduced accordingly. Exports were increased for hard red winter and soft red winter wheat, reduced for white wheat and left unchanged for hard red spring wheat and durum. Imports were increased for hard red winter wheat by the same amount that they were decreased for hard red spring wheat. The stocks/use ratio decreased from 27.9 percent to 26.5 percent. The seasonal average farm price was left unchanged at $3.10 - $3.40.

Corn production was increased by just 71 million bushels from last month, while exports were increased by 75 million bushels. Consequently, ending stocks were decreased by 4 million bushels. The stocks/use ratio decreased slightly to 13.5 percent. The projected seasonal average farm price was left unchanged at $1.90 - $2.30.

For barley, no changes were made in the balance sheet. However, USDA raised the seasonal average farm price from $2.45-$2.75 to $2.65-$2.95. In the case of oats, imports were increased by 5 million bushels but the seasonal average farm price was left unchanged.

Soybean stocks continue to tighten. Decreases in crush and residual use were more than offset by a decrease in production and an increase in exports. Hence, the stocks/use ratio tightened from 5.2 percent in October to 5.0 percent in November. The seasonal average farm price projection for soybeans was increased sharply from $6.05-$6.95 to $6.65-$7.55.

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