Wheat
Wheat moved higher after recent losses. The week began on Feb. 19 because of Presidents Day, with wheat moderately higher on most contract months other than Minneapolic Grain Exchange front months, which seemed to have finally hit its top and fell sharply lower. Feb. 20 opened the market up to more losses as the market consolidated after recent gains and without the MGEX front months rallying to pull wheat higher. With an absence of fresh fundamental news the market opened up to long liquidation and profit taking which pushed the market even lower. The market turned around once again Feb. 21 to move sharply bullish with technical and end user buying pushing prices higher. Also some position squaring after recent losses lended some support to stabilize the market.
Adding some fresh fundamentals to the market, the U.S. Department of Agriculture announced its projections for acreage in the 2008 to '09 marketing year. Wheat acres are projected to be at 64 million acres, which is above last year but 1 million lower than the baseline projection released earlier this month. However, the battle for acres isn't over until actual planting, so this could continue to influence wheat prices for the next couple of months. Feb. 22 wheat continued to move sharply bullish to finish off the week despite disappointing export sales. On an international front, both Argentina and Russia have stopped exporting wheat, which is providing some underlying support to the U.S. wheat market. USDA export sales were less than expected at 3.7 million bushels.
This is with preliminary expectations of 9.2 million bushels to 22 million bushels. This is still enough to keep us ahead of pace for the USDA's projection of 1.2 billion bushels. Inspection numbers Feb. 19 came in at 20.45 million bushels, near the middle of trade expectations for 15 million bushels to 21 million bushels. At this point, any further sales are friendly, as we already have nearly met USDA projections on wheat sales. The next year or so will continue to be interesting for wheat markets as we see where plantings come in and how production holds up under weather conditions.
Australian Bureau of Agricultural and Resource Economics predictions are calling for higher production out of Australia, but they are far from certain about the size of their crops either. ProAg is looking for a sideways trade in old crop wheat with prices of March very possibly testing old highs and May is expected to pick up where March leaves off in a few weeks. Producers continue to be shocked at the absolute strength of the rally the past few months. If anything, these high prices finally may have started to draw "hoarded" supplies onto the market, but the pace of sales continues to trickle. Producers will want to take a good, hard look at what kind of risk their operations can handle and be prepared to make slow, incremental sales of new crop at the elevator or at least pay for options to secure a price floor.
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CornCorn futures were bullish, continuing to rely on outside markets and neighboring grains for direction. Corn began the week moving moderately higher on outside markets, despite some set backs. Weather in South America continues to be favorable, which isn't providing any support for U.S. corn prices. This is beginning to be less of a factor, however, as the crop is reaching toward maturity and weather here is getting better. By Feb. 20, corn was stuck in choppy trade, eventually ending slightly higher. USDA projects that corn will be at 90 million acres in 2008 to '09. This is a drop from 2007's 93.6 million acres but above the baseline projections released earlier this month. The struggle for acres is far from over, at least not until actual planting, so this could continue to play a role in the market. Also ethanol production continues to expand, which is providing underlying support for corn when it comes to securing acres. Higher-than-expected exports also provided support to the market. Corn, overall, will continue to be volatile as it follows outside markets and other grains. It still lacks the fresh fundamentals to move independently and this will keep corn as a follower in the futures market.
USDA export sales were bullish at 46.3 million bushels. This is with preliminary expectations of 17.7 million bushels to 39.4 million bushels. This is well above expectations and what is needed to stay on pace for the year and should be viewed as bullish. Inspection numbers earlier in the week also were strong at 48 million bushels, above pre-report estimates for 35 million bushels to 45 million bushels.
We are right below the previous all-time highs in corn, the only real resistance left in any marketplace since both wheat and soybeans have run to new highs. ProAg finds it amusing to hear some analysts speculate on potential highs for markets now. No one knows for certain what any market can do, we all just have our best guess. So far, everyone's guess has in the end seemed far too low. And while we might marvel at how high prices can get, we may not want to get too comfortable as we are now in territory where price spikes from here can be quickly retraced as well. This spring, we will need to get aggressive in sales, but at what level we might be trading, God only knows.
SoybeansSoybean futures rallied to new contract highs once again with both old and new crop futures putting in a strong performance. The week started off strong on ideas that demand will improve now that the Chinese New Year is over, as well as a continuing effort in November to buy back some of the acres that were potentially lost to high wheat prices over the past few weeks. So far, the soybean market hasn't been as aggressive in buying acres as one would expect, but we look for that to change in the coming weeks. USDA also released its annual Agricultural Outlook forum report Feb. 21, which estimates planted acres for 2008. That report estimated planted acres will be 71 million acres, up around million acres from last year. This is in line with private estimates last week. However, carry-out for 2008 to '09 was estimated at only 169 million bushels, only a small improvement from where we are now. At those levels, that leaves little room for any production problem and the market should continue to rally.
However, the USDA reports on Feb. 19 were generally supportive with both sales and inspection numbers in line with trade estimates. Inspections for the week ending Feb. 14 totaled 32.95 million bushels in comparison to expectations for 30 million to 35 million bushels. Pace of inspections is ahead of what is needed to meet current USDA projections as well.
Farmer selling is becoming very thin, with many producers feeling burned by selling too early a long time ago - no matter how much you sold. The fact is any sale in the last five years or more was too early, and the best investment on the planet the past 18 months has been grain of almost any kind. This is increasing the potential in the marketplace, as speculator buying is not being offset much by farmer selling. Farmer "hoarding" is occurring, just like in the early '70s, with farmers becoming more tight holders of grain. This increases the chances that price spikes will occur much like the '70s (or like hard red spring wheat already has done), making it a very volatile atmosphere indeed. At some point in 2008, ProAg expects this trend to end, but it might be at multiple year highs in virtually every commodity. It might be surprising how high the market can go before we stop them. Prices need to ensure that under any circumstance, we will build stocks of grain in 2008. We simply cannot continue to cut ending stocks in an already tight market situation. Markets will work in the end, but what it might take to solve the problem this year might be nothing short of spectacular. Just ask any wheat producer who has watched hard red spring wheat rally to $20 in the past month.
Small grainsSmall grain prices were largely unchanged, remaining at the highest prices seen in years. Durum in particular continues to benefit from tight supplies of wheat the world over, and some processors have even been blending in spring wheat supplies to stretch what they do have. Barley is in a similar situation as export demand has been exceptional. One thing is for sure: The supply of barley and durum is not going to increase between now and this summer. It is possible the demand could decrease to some extent, but we believe it is at a point now where it will take some doing to bring the "hoarded" grain into the marketplace. As for new crop contracts, buyers still have to secure acres against record-high prices in wheat and soybeans. Because of this, we expect prices on new crop offers will continue to climb through at least the month of March.
Dry beansDry bean markets got very little news leaving prices nearly identical in many locations. Old crop supplies appear sufficient to cover projected demand, however the high prices of other crops is going to raise farmers' expectations as to what they should receive. On this front, it means buyers will have their work cut out to lure supplies out of storage. New crop is in a similar situation, although high input costs could drive many producers over to soybeans. Because of this, we feel that there is still plenty of upside left in this market for all varieties. OilseedsOilseed prices continued to climb for canola, flax and sunflowers. While production of sunflowers was decent during the past year, soybeans, canola and flax are all struggling to end the year with some semblance of carryout. Additionally, reported problems in the Chinese
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rapeseed crop means that both the U.S. and Canada are likely to see strong buying of vegetable oil and vegetable oil crops in the coming months. Old crop prices rise in an attempt to lure supplies out of storage as well as ration out the demand. Further complicating matters is the fact that sliding U.S. dollar values are forever cheapening our grain on international markets.
Corn, soybeans and wheat account for about 85 percent of all annually tilled soil in the U.S. That leaves only 15 percent of the acreage for all other crops, and the big three (corn, beans and wheat) currently are bidding aggressively for new acreage. That means that dry beans, sunflowers, canola, flax, durum, barley and other vegetables all will have difficulty holding on to to current acreage mixes with a huge rally in every other crop. Every potential buyer is running scared right now. Occasionally a buyer of specialty crops will try to scare growers by saying "We're signing all kinds of contracts right now - we might not have anymore left." But this is really a false threat, and eventually all growers will realize this if prices keep rolling higher. It's an interesting situation, as specialty crop buyers cannot outbid the big three with their small acreage requirements, so they remain followers in the marketplace.
