June 15, 2006
By George Flaskerud, Crops
Economist
North Dakota State
University (NDSU) Extension Service
The USDA released its latest supply-and-demand report on June 9.
The stocks/use ratios decreased for wheat and corn relative to a
month ago, but increased slightly for soybeans. Relative to
trade expectations, ending stocks of wheat, corn and soybeans
were well within the ranges of estimates, but a little below the
averages.
Since the findings were anticipated, the report's impact on
prices should be minimal and the market's attention should
return to growing conditions around the world.
The good/excellent ratings were favorable as of June 4 for all
U.S. crops except winter wheat. The rating only was 27 percent
for winter wheat (down 1 percent for the week), 69 percent for
spring wheat (down 4 percent), 74 percent for barley (down 2
percent), 71 percent for corn (up 1 percent) and 70 percent for
soybeans (initial rating).
Saskatchewan crop conditions as of June 4 also were very
favorable for spring wheat and durum, with 88 percent rated
good/excellent, according to Saskatchewan Ag and Food. Although
the ratings were good as of June 4, concerns about dry
conditions across parts of North Dakota began surfacing after
the report was released.
Given the favorable ratings, Minneapolis December wheat futures
set a high in May at $5.01, which was $1.36 more than the
November low and closed at $4.73 on June 8. December corn
futures reached a high in May of $2.87, which was 49 cents more
than the December low, and closed at $2.71 on June 8. November
soybean futures have traded between $5.75 and $6.48 since last
November and closed at $6.16 on June 8 after reaching a May high
of $6.39.
The USDA projected a 2006-07 seasonal average farm wheat price
of $3.60 to $4.20 per bushel or 10 cents above a month ago. For
corn and soybeans, the projections were left the same as last
month at
$2.25 to $2.65 and $5.10 to $6.10, respectively.
Consider making additional preharvest sales on rallies at least
above June 8 price levels, especially if few sales have been
made and northern Plains growing conditions continue to be
favorable.
Although prices have come off their highs, they still are fairly
good relative to the USDA's projected seasonal prices. Futures
prices at June 8 levels should result in cash prices that are at
least at the midrange of USDA projections adjusted to North
Dakota.
Conversely, consider buying wheat and corn call options on
market weakness, especially if substantial preharvest sales
already have been made. Weather and the outlook for a tightening
level of stocks have the potential to drive prices higher.
September calls three strikes out of the money on June 8 would
have cost 15 cents per bushel for Minneapolis wheat and 8 cents
for corn. Soybeans are left out of this strategy because the
outlook is for ample stocks. The potential for weaker prices may
be greater for wheat than corn because substantial winter wheat
harvest sales are likely due to relatively strong prices.
Changes in the 2006-07 balance sheet for wheat reduced the
stocks/use ratio from 21.6 percent in May to 20.3 percent in
June versus 25.1 percent a year ago. During the past month,
projections of planted and harvest wheat acres remained the
same, but the yield per harvested acre was reduced from 40.6 to
39.3, reflecting a hard red winter wheat production estimate
that was reduced by approximately 8 percent. The decrease in
production that resulted was partly offset by a decrease in feed
and residual use. Although 2005-06 all-wheat ending stocks
remained unchanged from last month, changes were made by class
(increased for hard red winter and soft red winter, but reduced
for the others). Projections for 2006-07 spring wheat, durum and
the other classes will be reported on July 12.
The 2006-07 wheat export projection was left the same as a month
ago at 900 million bushels, although exports are expected to be
down 100 million bushels from a year ago because of limited
supplies and higher prices. World wheat trade is expected to be
about the same as a year ago, although reduced imports are
projected for North Africa (bad news, especially for durum), the
EU-25 and the wheat-feeding countries of South Korea, Israel and
the Philippines (limited supplies of low-quality wheat). The
reduced imports are expected to be offset by increased imports
by India. The Ukraine and Russia are expected to export
considerably less because of production problems. Increased
exports are expected by the EU-25, Canada, Argentina, Australia
and Kazakhstan. Australia needs to be watched because it is
experiencing some dry conditions.
World ending stocks for 2006-07 wheat were left nearly unchanged
from a month ago, but are down about 11 percent from a year ago.
Low ending stocks are likely to contribute to wheat price
volatility throughout the year. At 128 million tons, ending
stocks are projected to be the second lowest in 25 years.
For corn, the only change in the 2006-07 balance sheet from a
month ago is a 50 million bushel decrease in beginning stocks.
Corn use is expected to be a record because of increased ethanol
production and increased exports relative to a year ago. Corn
use for ethanol is expected to increase 34 percent, which
follows a
21 percent increase last year. Exports are expected to be the
highest since 1994 to 1995 because of less competition from
Argentina, China, South Africa and feed-quality wheat. As a
result of record use, stocks are getting tighter, with a
stocks/use ratio of 9.4 percent projected versus 9.8 percent
last month and 20.2 percent a year ago.
Barley and oats each had a 5 million bushel increase in
beginning stocks, which was the only change in their 2006-07
balance sheets relative to a month ago. Seasonal average prices
of $2.45 to
$2.85 and $1.60 to $2 were projected for barley and oats,
respectively.
Global coarse-grain ending stocks for 2006-07 are expected to
decrease significantly from a year ago (24 percent), but remain
essentially unchanged from last month. A stocks/use ratio of 13
percent is projected versus 17.5 percent a year ago. China is
expected to continue being a net exporter of coarse grain.
Although China's coarse-grain ending stocks have been drawn down
sharply during the last few years, they still are expected to
have more than two months of use on hand.
For soybeans, a 5 million bushel increase in beginning stocks
was the only 2006-07 balance sheet change from a month ago. The
soybean crush is projected to be a record and exports are
projected to be just short of the 2004-05 record, so the
stocks/use ratio is expected to be 21.8 percent versus 21.7
percent a month ago and 20.5 percent a year ago.
Helping U.S. exports and soybean prices was a
smaller-than-expected Brazilian crop. The 2005-06 production
estimate for Brazil was reduced to 55.7 million metric tons from
56.5 million a month ago.
Use of soybean oil for biodiesel is growing and becoming a more
significant component of crush. There are at least 65 biodiesel
plants operating, according to the USDA. During the next 18
months, another 50 plants under construction or planned could
more than double U.S. production. The USDA's projected 2006-07
domestic use of soybean oil is approximately 6 percent higher
than a year ago and 9 percent higher than two years ago. The
high level of use is expected to reduce the substantial
inventory of soy oil, although it is expected to remain higher
than two years ago. The result is fairly strong soy oil prices
relative to the level of stocks on hand. The USDA is projecting
a soybean oil seasonal price of $22.50 to $26.50 versus $23.25
last year and
$23.01 two years ago.
Strong soybean oil prices should help sunflower and canola
prices, which are benefiting from supply-and-demand situations.
As of June 7, NuSun bids at Enderlin were $10.25 per
hundredweight for old crop and $11.50 for new crop. Canola bids
at Velva were $11.14 per hundredweight for June and $11.27 for
October/November. |