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January 5, 2001

Feedgrain prices
More of the same?

By Lana Robinson
Field Editor

Looking at USDA's Dec. 12 release of the World Agricultural Supply and Demand Estimates report, it is evident that feedgrain prices could use an export boost. The report lowered both corn and grain sorghum exports, and raised ending stocks for corn to a comfortable 1.754 billion bushels for the 2000/2001 marketing year. With harvest essentially over, Dr. Mark L. Waller, professor and grain marketing economist for the Texas Cooperative Extension, says there is little likelihood for a change from the current estimated production of 10.054 billion bushels for corn and 276.2 million bushels for sorghum.

"Between now and spring, market participants will turn their attention to the demand side of the supply/demand equation, as they attempt to determine what will happen to market prices as we move through the winter months," said Waller, following release of the USDA report. "Domestic demand appears to be strong and should provide support to cash and futures market prices, but exports could continue to be a concern."

StarLink issue not over

Waller suggested that problems resulting from discovery of StarLink genetic material in exports of grain for customers that do not want it are not over, but he does not blame sluggish exports on StarLink issues only. He said corn export sales commitments are not alone in lagging behind expectations so far this year. Feed wheat will also continue to provide competition for corn and grain sorghum in export markets this winter, as countries that had poor quality wheat crops this year attempt to move those supplies into the market place. As for China, Waller said it will continue to be a big question mark.

Shift to soybeans possible

"With total use of corn in the 2000/2001 marketing year estimated at 10.023 billion bushels, we could see only a slight increase in ending stocks for corn this year, and more importantly, market participants will likely begin to get concerned come spring about having enough acres devoted to feedgrain production in 2000/2001 to meet the growing U.S./world demand," he predicted. "While moisture accumulation so far this fall would suggest that the major feedgrain producing areas will come into spring in good shape, having good yield potential, there will likely be some concern about more acres shifting to soybeans. With energy prices so high, there is a big concern about fertilizer costs, which could shift more acreage to soybeans."

Waller noted that the current problems in Europe with meat and bone meal (MBM) could also help improve soybean prices relative to corn enough to cause an acreage shift to 'beans.

"Producers sticking with corn will also need to consider what genetics to use for the coming year. Market participants will be trying to assess possible yield impacts associated with moving away from certain varieties," he added.

From a marketing perspective, Waller said feedgrain prices will likely continue to move in a tightening sideways pattern, waiting for enough new market information to provide the needed emphasis to push prices either higher or lower.

"While the potential is there for prices to rally this winter, it will likely require better demand, and market participants will need to see improvements in export sales and shipments before prices will respond. As we look forward to the 2001 production season, be prepared to deal with much the same kind of low prices we have seen over the last two years," he warned. "There is a chance that we could see better prices in 2001/2002, but if that is going to happen, it will likely be due to a supply shock such as drought, or a big shift in acreage."

Improvement in wheat?

According to Waller, the World Agricultural Supply and Demand Estimates report revealed increased estimates for both domestic food consumption and exports, and reduced estimated ending stocks for the 2000/2001 marketing year to 862 million bushels. World ending stocks were also reduced, declining to 109.91 million metric tons.

"While that information would normally have a positive impact on market prices, both old crop and new crop futures are continuing to struggle. Sometimes the most important information we can glean from the market isn't the fundamental information itself, but how the market reacts to it," the feedgrains economist noted.

Waller pointed out that world stocks continue to fall to multi-decade lows, but U.S. stocks, while lower, are still at a burdensome level.

"At the same time, the recently planted U.S. winter wheat crop is going into dormancy, and will likely be less of a concern to market participants over the next couple of months. While there is potential for substantially higher wheat prices in the coming year, given the tight world situation, and the late planting and emergence of the U.S. winter wheat crop, some kind of serious shock must happen if those higher prices are to be realized," he said.

Waller noted that numerous problems revolved around the planting and emergence of the Fall 2000 winter wheat crop. By some analysts' estimates, acreage could be down by 1 to 2 million acres from last year because of the planting delays. Although the weekly crop conditions reports show this year's crop in better shape than the year-ago crop at this time, it is still well below average.

"However, now that the cold weather has arrived and the crop is entering dormancy, the preceding information all becomes old news, and will likely have little effect on the market over the next few months," said Waller. "The biggest factor in price direction over the next couple of months will likely be due to changes in demand and export expectations. Anyway we look at it, we have a long way to go before we can get out from under this burdensome domestic carryover situation."

From a marketing perspective, Waller's advice is to take advantage of rallies as pricing opportunities during the winter months. But in light of the tight world supply/demand situation and the U.S. winter wheat crop situation, he suggested strategies like minimum price contracts that allow some upside potential may be in order.

"The possibility exists for substantially higher prices over the coming year if there is a major supply shortfall during 2001. Otherwise, a normal production year in the U.S. and worldwide would probably lead to the same kind of dismal harvest time prices next summer as we have seen for the last couple of years," he said.