KANSAS CITY — Substantial gains forecast for domestic and global wheat production in 2008 will lead to sharply lower new crop prices, but price decreases for other grains and oilseeds will be less severe even with acreage shifts, analysts contacted by Food Business News said.
Record high prices for wheat and 33-year highs for soybeans in 2007 are expected to attract acres in 2008, mostly at the expense of corn, which achieved only 10-year highs this year. But myriad other factors, including export demand, alternative fuels, commodity fund buying, economic strength and especially weather will continue to play a large role in determining commodity prices.
Dan Basse, president of AgResource Consulting Group, Chicago, said he sees the period of record high commodity prices coming to an end, with prices moderating in a broad range, especially during and after the second quarter of 2008 as U.S. winter wheat and South American soybean crop prospects become better defined.
Paul Meyers, vice-president of commodity analysis for Connell Purchasing Services, Berkeley Heights, N.J., offered a similar scenario. Both analysts agreed the greatest potential price break was in wheat as the market shifts focus from old crop to new crop late in the first quarter of 2008, but both also had the caveat of "normal weather."
"New crop wheat fundamentals look 180 degrees different than old crop," Mr. Meyers said. He expects Kansas City and Chicago wheat prices to decline $email@example.com a bu in the next two to three months, and then drop below $6 in the second half of the year, when Minneapolis spring wheat prices will range from $firstname.lastname@example.org. Old crop futures prices currently range from about $9.70@11 a bu at the three exchanges, while new crop prices are mostly in the $email@example.com range.
Mr. Basse said he expects wheat prices will continue to ration U.S. wheat supply through February, when the focus will switch to new crop and "prices will accelerate down."
Record high wheat prices have encouraged increased wheat seedings in nearly every country with the possible exception of India, Mr. Basse said. He expects 2008-09 world production of 646 million tonnes, up from 602 million in 2007-08.
"The world market will be amply supplied with wheat," he said
Weather conditions currently appear more favorable than a year ago, said meteorologists Jon Davis, Mark Russo and Josh Darr of Chesapeake Energy Corp., Chicago, although some concern remains for southern portions of the U.S. winter wheat belt.
"The risk to the crop surrounds dry weather during the spring that would reduce yield potential especially in the southern sections of both belts — Plains hard red and Midwest/Delta soft red winter wheat," the Chesapeake weather team said. Weather conditions during the spring of 2008 partially will be driven by the La Nina event in the Pacific Ocean, which will cause a bias of dry weather across much of the southern U.S. while the northern U.S. will tend to have a wet bias, the meteorologists said.
Concerns about dryness in the hard red winter areas of eastern Colorado, western Kansas, Oklahoma and Texas most of the fall were reduced by recent ice and snow.
Domestic wheat plantings are expected to increase as much as 10% from 2007, indicated in part by the projected use of wheat for seed in 2007-08 at 88 million bus, up about 9% from 2006, the U.S. Department of Agriculture said in its December supply/demand report. In that report the U.S.D.A. projected U.S. wheat carryover on June 1, 2008, at 280 million bus, the lowest in 60 years.
Mr. Basse forecast winter wheat planted for harvest in 2008 up 4.7 million acres, or 10%, from 45 million in 2007. Mr. Meyers was more conservative, forecasting a 3 million acre increase, or 7%, for 2008. Informa Economics, a Memphis, Tenn., analytical firm, forecast winter wheat planted area at 48.7 million acres, up 8% from 2007, according to trade sources who get the company’s data.
Although U.S. winter wheat already is planted, official estimates from the U.S.D.A. won’t be available until Jan. 11, 2008. That date will be key, Mr. Meyers said, because the U.S.D.A. also will release revised 2007 crop production data as well as update domestic and global supply/demand projections.
Durum to claim much more area
Although spring wheat prices traded at the Minneapolis Grain Exchange remain the highest of the three classes of wheat, the analysts expect spring wheat area will face tougher competition with corn and soybeans as well as from durum.
Spring wheat area, other than durum, was forecast by Informa at 13 million acres, down 2% from 13.3 million in 2007. Mr. Basse also expects a modest decrease in spring wheat plantings due to competition from other crops. But Mr. Meyers said he expects a 2% to 3% increase in spring wheat plantings based on strong prices, as the crop takes acreage from minor oilseeds such as canola.
Durum prices remain within 25c of its all-time record high of $20 a bu, basis Minneapolis, set in October, which was more than three times the year-ago price of $6.30. As a result, spring durum plantings in Canada and the U.S. northern Plains are expected to "explode," Mr. Basse said. He forecast plantings for the two countries’ major durum area up 16% to 19% from 2007. Informa forecast even larger durum plantings in 2008 at 2.7 million acres, up 29% from 2.1 million in 2007. And Mr. Meyers saw still stronger durum plantings, up 700,000 to 800,000 acres, or 32% to 37% from a year earlier.
Increased durum production will pull cash durum prices sharply lower, down to the $6@7 a bu range for new crop, Mr. Basse predicted. But stocks are tight and new crop is "a long ways away," he cautioned. The tight stocks situation for all types of wheat will provide for a difficult transition from old crop to new crop, Mr. Meyers agreed.
Soybean area up, prices ease
Although not record high, soaring soybean prices also are expected to attract increased plantings in 2008, but possibly not enough to push prices down significantly from the current levels near $12 a bu range, Mr. Meyers said.
Soybean plantings are forecast to partially rebound in 2008 after plunging 16% in 2007 from a year earlier. Informa forecast soybean area at 70 million acres, up 10% from 63.7 million in 2007 but still below the 75.5 million acres in 2006.
The keys to 2008 soybean prices will be South American weather, the strong pace of exports and prices of competitive crops, Mr. Meyers said. An increase of 9 million to 10 million acres is needed to rebuild carryover, he said, but he expects only about a 6 million acre increase from 2007. The U.S.D.A. forecast soybean carryover on Sept. 1, 2008, at 185 million bus, down 68% from a year earlier.
Still, helping to moderate soybean prices will be a stronger U.S. dollar and slower economic growth globally, both of which will tend to reduce export demand, and lower crude oil prices, which will reduce demand for soybean oil used to make biodiesel, Mr. Meyers said.
Soybean prices should average "$10.75 to $11.25 a bu for most of next year" assuming average weather, Mr. Meyers said. With a big South American crop and increased U.S. plantings, "we’re not going to run out of soybeans," he added.
"Soil moisture reserves have improved in recent weeks across the vast majority of South American soybean acreage," the Chesapeake weather team said. "As we head into mid-summer, crop prospects are very favorable. However, close monitoring of South America is warranted during the late January through March period when soybeans will be going through their yield-sensitive crop development stage as the current moderate/strong La Nina increases the risk of heat/dryness during this time frame."
Corn plantings expected to drop
After surging 20% from a year earlier in 2007, to the highest level since 1933, corn planted area is expected to decline in 2008, although not to "pre-ethanol era" levels that were closer to 80 million acres.
Corn planted area for 2008 was forecast at 87.4 million acres, down 7% from 93.6 million in 2007, by Informa. Mr. Meyers also sees about a 6 million acre drop in corn plantings in 2008. Mr. Basse forecast a 5.6 million acre decline. As with soybeans, the first official indication of corn area will be released in late March.
"Corn carryover is more than adequate," Mr. Meyers said. He also said the U.S.D.A. projected use of corn to make ethanol, at 3,200 million bus, still was 100 million to 200 million bus too high. Negative margins and a slowdown in the expansion of production capacity has taken some of the bloom off the ethanol market.
The analysts expect only minor changes to corn prices in coming months. Mr. Meyers forecast corn to range from $firstname.lastname@example.org a bu in the first half of 2008. Mr. Basse put the range at $email@example.com. Current corn futures prices have been in the $firstname.lastname@example.org range for 2008 contracts.
"The keys to commodity prices in 2008 are the Chinese economy and weather," Mr. Basse said. Strong economic growth in China has spurred demand for many commodities, especially soybeans and soybean products.
Mr. Meyers stressed the importance of weather.
"Any kind of weather issue could add 20% to 25% to price forecasts," he said. Continued investment in commodities by large commodity funds also will tend to support prices, he added.
This article can also be found in the digital edition of Food Business News, December 25, 2007, starting on Page 1. Click