2004 outlook: Market bulls taking lead

Mid-South producers may not have to travel the thousands of miles it takes to get to Pamplona, Spain, to enjoy the thrill of running with the bulls this year. The general consensus among area agricultural economists is that the bulls finally seem to have overtaken the bears.

Most of the row-crop commodity markets have experienced significant price improvement in their current marketing years, and there are signs that trend could continue, according to Mississippi State University agricultural economist John Anderson.

Anderson and his fellow economists shared their market projections with growers attending the Ag Update 2004 meeting at the Delta Research Extension Center in Stoneville. Here's what they say growers should expect from the markets in 2004.

SOYBEANS: The 2003-04 soybean marketing year, which began Aug. 1, has seen decreases in soybean crush numbers, exports, stocks, and production. Steve Martin, agricultural economist at Delta Research and Extension Center in Stoneville, calls the soybean market outlook “positive for producers.”

“Price has weakened a little in recent weeks, but is still way above the five-year average,” he says. “There has been an opportunity for the last six months for growers to lock in a positive price for the 2004 soybean crop.”

Martin adds: “Production numbers for the 2002-03 marketing year were significantly lower due to production problems in the Midwest. On top of that, increased exports to China have surprised everybody in every commodity in the last six months, and ending stocks are expected to hit a critically low level of 125 million bushels.”

While a bumper South American crop could limit price potential, favorable forward pricing opportunities have been available to growers since the 2003 harvest was completed. “Monthly soybean prices have stayed above the five-year average price throughout the past 12 months, but unfortunately, too many of us had sold our beans before the prices spiked to year highs,” Martin says.

That doesn't necessarily mean the run upwards is over. Martin believes that most of the South American crop potential is built into the market, but he says potential harvesting problems or limiting yields due to Asian Rust Disease in the Southern Hemisphere could be bullish for prices.

USDA is projecting an average farm price of $7.25 per bushel for the 2003-04 marketing year, but higher prices for competing commodities could limit soybean acreage in 2004. It's also possible that soybean supplies could be rationed through the higher futures prices.

A recent drop in soybean futures, according to Jim Quinn, market analyst with Mississippi Farm Bureau, was the result of disappointment in the market because the U.S. government did not regulate all animal products out of animal feed.

“But the shock of that may be over, and prices seem to be attempting a recovery from the recent slide,” Quinn says.

CORN: Corn futures have tended to trade sideways in recent months, due at least partly to increased production expectations in 2003. However, prices have strengthened recently thanks to lower 2003 production estimates and thus lower ending stocks, increased export potential to China, and a U.S. dollar exchange rate “that makes it easier for us to sell into other markets,” Martin says.

The price forecast for the 2003-04 marketing year is affected by ending stocks that are lower coming into the 2004 crop season, higher projected production numbers, increased export potential, and feed use that's up slightly. Because the Midwest historically favors soybeans over corn, ending corn stocks could be further reduced.

“We haven't begun exports to China yet, but the rumor is there that it could happen as soon as late 2004 or early 2005. That possibility is factored into the market,” says Martin. “It's a market to watch. We could see some things happen before the year is over.”

RICE: “Most analysts are suggesting that the LDP (loan deficiency payment) will go away, and the market price for rice will go up this year,” says Martin. “There are a lot of bullish factors in the market for rice, like other commodities. However, not many producers are willing to book prices with such a small market to hedge.”

Market highlights: Strong exports, low on-farm stocks, strong demand both in Central America and Asia, inability to “lock” in U.S. prices, and amount of rotational soybeans booked, he says. “From the U.S. standpoint, this may limit rice acreage in 2004, coupled with the inability to lock in rice prices for 2004, because rice is not heavily traded on the board.”

Rice prices have been relatively strong through the early weeks of 2004 with September and November futures contracts fluctuating within the $7.70 to $7.80 range. USDA forecasts are projecting an average farm price of anywhere from $7.00 to $7.50 for the 2003-04 marketing year. “That could affect counter-cyclical payments,” Martin says.

“Beginning stocks are down, production forecasts by USDA call for a smaller crop in 2004, and imports are growing, but not very significantly,” he says. “Domestic use is also expected by USDA to hit 124 million hundredweight this year, but I'm suspect of the USDA export number.

“Most analysts believe the number will be revised upwards, because, halfway through the market year, we've already reached 80 percent of that number.”

WHEAT: USDA is forecasting an average wheat price of $3.35 per bushel for this 2003-04 marketing year.

“We started the marketing year with lower ending stocks and increased production and exports, and the numbers seem to be holding strong,” he says. “In the past year, export demand has reached its highest level since 1995-96, winter wheat acreage is currently down 3 percent, and moisture continues to be short in the Plains growing region. All of these are bullish factors for the wheat market.”

While ending stocks are higher than they were last year, those numbers have been revised downward in the past month.

“A recent rally on July 2004 futures prices is creating favorable forward pricing opportunities, and prices could go higher if dry weather continues in the western wheat belt,” Martin says.

CATFISH: Mississippi State University's John Anderson says catfish growers expected to see some sort of price recovery in 2003, but that expectation didn't exactly pan out.

The extremely low fish prices of 2002 continued throughout most of 2003 as high production levels continued amid surging imports of high-value frozen Vietnamese basa and tra filets.

On the positive side, Anderson says, the U.S. catfish industry has seen some fourth quarter price recovery, and the counter-seasonal price increase is lifting prices back up to the five-year average.

“The outlook for 2004 is better than it has been for some time in this industry,” he says. “Catfish supplies came down in 2004 due to lower domestic production, import restrictions and labeling laws that are starting to take effect. Plus demand has been bolstered by the improving economy, which helps to increase away-from-home consumption.”

However, higher feed prices are offsetting at least some of the effects of higher catfish prices. “Feed prices are very much affected by soybean meal prices. It's really affecting the pocketbooks of our catfish producers, and what happens in that market will greatly affect the 2004 income outlook for catfish producers,” Anderson says.

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