The wheat market continues to impress with futures prices reaching as high as $5.25 during trading in early November. But corn will continue to be the leader in the market based on a backdrop of shrinking supplies going into 2007, according to Jim Bower, a market analyst with Bower Trading Co., Lafayette, Ind.
Speaking at a conference call sponsored by the Minneapolis Grain Exchange on USDA's Nov. 9 supply and demand estimates, Bower said, “The market needs to buy more corn acres in 2007 and consequently, if we get a rise in price to get that corn into production, the soybean market to a certain degree is going to have to follow.”
USDA forecast corn production at 10.75 billion bushels, which Bower says is nearly 100 million bushels below the average trade guess of around 10.84 billion bushels. “There is nothing there to say that the end-user should be less concerned about the availability of corn going into winter or next year.”
The average bushel per acre estimate for corn of 151.2 was a little lower than the average trade estimate of 152.5, Bower noted.
Corn ending stocks are projected 60 million bushels lower than last month at 935 million bushels. Globally, corn stocks are slightly above October estimates.
China's corn production was also increased, “but China is still consuming a vast proportion of its crop and hasn't really surfaced in the global market the way a lot of people thought they would earlier.”
U.S. ethanol use was left unchanged at 2.15 billion bushels. “There is some question about how quickly the ethanol plants progress. Certainly, we aren't at a price for corn or for ethanol where we would be shutting down ethanol. It has slowed down, but the ethanol plants are still making money.
“Even though corn prices have a chance to go higher, the risk and the volatility of the market from here forward are going to be much higher. With corn at this price or higher for 2007, some consideration should be given to laying put options, or floors, underneath this market and leaving the top end open.”
USDA forecast U.S. soybean production at 3.2 billion bushels, a little less than the average trade estimate, according to Bower. “Average yield of 43 bushels per acre is also less than the average trade guess.”
Ending stocks for 2005-06 soybeans remain at 449 million bushels, while ending stocks for 2006-07 rose to 565 million bushels, “which is still about 18 million bushels below the average trade guess and indicates that global demand is holding up a little bit better than expected.”
USDA left projected Brazilian soybean production at 56 million metric tons. “Originally, I thought the Brazilians would drop 3 percent to 7 percent on acreage, but with this move up on May soybeans toward the $7 mark, I believe the Brazilians and the Argentines will try to promote more acres.
“As we all know, there is acreage available for them to do that. I want to be pro-active and really start paying attention to what the Brazilians are doing because it has an impact on price discovery here by next May.”
U.S. wheat production was left unchanged at 1.81 billion bushels. USDA dropped ending stocks to 418 million bushels, below the average trade estimate of 426 million bushels.
Bower suggests that producers “pay very close attention to what is going on in the North China Plains and the Shandong Province. Those areas desperately need rain to help germinate crops. Some haven't had a rain in two months.”
The Australian wheat crop continues its downward spiral, due to extreme drought. “They started out with a projection of almost 25 million tons. Their drought was one of the worst in history. USDA has now dropped the Australian crop to 10.5 million metric tons, below the October estimate of 11 million metric tons. There are some analysts in Australia who have actually called for a crop as low as 8 million to 9 million metric tons. It makes the situation for wheat available to Asia even tighter than it was a month ago.”
When asked about prices for wheat, Bower noted, “The wheat market is still a follower of corn. We have to watch it on a daily basis. I do think that pricing a portion of next year's crop at this level or higher is reasonable.”