Tighter stocks higher prices seen for corn wheat soybeans

by Ron Sterk
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KANSAS CITY — Corn, soybean and wheat futures prices surged last week after a bevy of bullish U.S. Department of Agriculture reports at midweek projected tighter supplies and higher prices of major commodities in the months ahead.

Projected U.S.D.A. numbers for 2011 corn, wheat and soybean carryover (supply at the end of respective marketing years), stocks of all three commodities on Dec. 1, 2010, and estimated 2010 corn and soybean production all came in below average trade expectations and all were below prior or year-ago estimates with the exception of Dec. 1 wheat stocks.

As a result, some corn and soybean futures contract prices shot to 30-month highs, with corn up the 30c-a-bu daily limit and soybeans up the 70c limit, in early trading on Jan. 12. Futures prices came off their highs later in the day but still ended with old crop contracts up about 60c a bu for soybeans, up about 25c for corn and up about 15c for wheat. Prices advanced again on Jan. 13.

“It means a very difficult time for the purchasing side going forward,” said Paul Meyers, vice-president of commodity analysis for Connell & Company, Berkeley Heights, N.J. The data set the stage for another 12 months of price volatility, especially in corn and soybeans, he noted.

While most eyes were on carryover numbers, Mr. Meyers suggested relatively sharp declines of 1% from November of 93 million bus in 2010 U.S. corn production and 46 million bus in 2010 soybean outturn leading to tight supplies of both may have been the most significant numbers in last week’s reports.

Initial forecasts last summer pointed to record large U.S. production of both corn and soybeans. The revised estimate for corn production of 12,447 million bus was down 7% from the initial August 2010 forecast. For soybeans, the latest revision to 3,329 million bus was down a more modest 3% from the initial forecast. Still, the corn crop was the third largest ever and the soybean crop the second largest.

The projected corn stocks-to-use ratio of 5.5% on Aug. 31, 2011, is the lowest since 5% in 1995-96, the U.S.D.A. said.

“It’s never been below 5%,” Mr. Meyers said, “and corn harvest still is two to three weeks away at the end of August.”

But the supply crunch is even more dramatic for soybeans. The projected soybean stocks-to-use ratio of 4.2% on Aug. 31, 2011, is the lowest since the mid-1960s, Mr. Meyers pointed out.

Despite large soybean crops in the United States and South America in the past year, significant uncertainty about the recently planted Argentine crop due to hot, dry weather have led analysts to trim expected production from that key producer. And on the demand side, China’s voracious appetite for soybeans continues to pull in exportable supply.

Mr. Meyers suggested wheat was the most “comfortable” market because of better supply compared with corn and soybeans and an already known increase of about 3.7 million acres in U.S. winter wheat area for harvest in 2011. As a result, buyers should refrain from pushing wheat coverage very far forward, he said.

But buyers should be more aggressive in corn and soybean markets, Mr. Meyers suggested, pushing coverage “out a month or so” on price breaks of 20@30c in corn futures and even on “modest” price breaks in soybean futures.

“It’s been much easier for the market to move higher than lower,” Mr. Meyers said.

The U.S.D.A. raised its projected average cash prices, with all wheat expected to average between $5.50@5.80 a bu for the market year, up from $5.30@5.70 projected in December and from $4.87 in 2009-10 but below the record $6.78 in 2008-09. Corn prices were projected to

average between $4.90@5.70 a bu for 2010-11, up 10c from the average projected in December, and above $3.55 in 2009-10, $4.06 in 2008-09 and the record $4.20 in 2007-08. The largest price increase was seen in the soy complex, with soybean prices projected to average between $11.20@12.20 a bu in 2010-11, up from $10.70@12.20 forecast in December and from $9.59 in 2009-10, $9.97 in 2008-09 and the record $10.10 in 2007-08.

The question remains: “Are we in for another 2008?” That’s when crude oil and several major agricultural commodities set record high prices. Most analysts still contend prices will not reach those levels, especially because the outlook for crude oil remains well below the record high near $150 a barrel. But, it also seems grain and oilseed prices keep getting closer to those 2008 highs. And two unknowns that may drive prices still higher are weather and the economy.

“I don’t think the report will lead us to 2008 highs,” Mr. Meyers said. “I don’t think we will see $8 a bu corn or $16.50 a bu soybeans.” But he noted that inflationary psychology, related to general economic gains, would be supportive to commodity prices. And he added that a significant weather issue also could add to prices.

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