Grain outlook: Hold on for the ride


LOUISVILLE, Ohio – Low crop yields in drought-stricken Ohio and implications of foreign production weigh heavily on the minds of Ohio crop producers who attended grain marketing outlook meetings across the state last week.

More than a dozen producers and marketers turned out at a Nov. 18 Louisville meeting to hear Ohio State agricultural economist Matthew Roberts’ latest predictions on basis, yield and worldwide outlook for producers in the 2003 marketing year.

“It’s interesting to hear his thoughts and compare them with my own,” said Jenifer Weaver, a grain merchandiser for Deerfield Farms Service in Deerfield, Ohio.

“These are the marketing questions that farmers want answered,” she said.

Corn crop. In all years since the last farm bill was issued, the nation has seen a steady decline in overall corn production and increased consumption.

That decline, described by Roberts as “not necessarily bad, just a fact of life,” is due to changing farm policies.

“We can’t have another year where we use more than we produce,” he warned, noting this year’s data show consumption outpaced production by 770 million bushels.

Next year’s prices are set to increase quickly as consumption exceeds 9.75 billion bushels.

“An average harvest won’t significantly reduce prices. It will really take an above average harvest to really bring prices back down,” Roberts said.

Considering weak livestock markets and herd downsizing across the boards, Roberts has watched as ethanol has picked up the slack in the market.

Ethanol. Called a crucial driver of corn production, demand for ethanol will continue to be steady as California phases out MTBE and Minnesota continues its 5 percent ethanol requirement in fuels.

A number of other bills are moving through Congress that will increase ethanol demand as well, Roberts said.

Ethanol production is not price sensitive, either.

“Once you’ve got a plant built, it’s hard to substitute between inputs,” Roberts said.

In addition, an increased number of ethanol manufacturing facilities proposed across the nation will add 4-8 cents to on-farm prices over the next three years, according to predictions from Iowa State.

Exports. On the export side, Roberts expects more exports in the next year, but doesn’t see that happening with current prices, he said.

“Once the crop is harvested, that’s what we’ve got to work with,” he said.

Changes in export numbers over the next few months are crucial to determining domestic feed prices, which he expects to decrease as exports drop from 1.925 billion bushels.

Domestically, the market isn’t offering much and economists don’t see a pattern of strengthening basis, Roberts said.

“It’s unlikely that [market] strength will go much beyond February or March unless concerns surface about next year’s crop,” he said, expecting a early spring price peak.

Futures prices he foresees include December, $2.44; March, $2.45; July, $2.49; September $2.44 and December 2003, $2.42.

Soybeans. With the disease scare and the European Union phasing out bone meal, worldwide demand went up for soybean meal this past year.

The commodity was imported to the United States for the first time this past summer and that step could be an indication of how next year might play out, Roberts said.

“Soybeans are very tight in America right now and it will be that way for the next few years unless demand slackens or bumper crops come in,” he said.

Domestic use in 2002 was 1.825 billion bushels, and exports were 890 million bushels.

To keep pace, 2003 nationwide production would have to meet or exceed 41 bushels per acre on the same acreage as last year, described as a “huge increase” by Roberts.

At the state level, 2002 crop yields averaged 32 bushels per acre.

Impressive demand has led U.S. farmers to increase production by 30 percent in the past four years despite the downturn producers are entering in the cattle cycle.

“It’s been a bad couple years to raise any type of livestock. Because of [herd reductions] demand is softening,” the economist said.

Even with the cloudy outlook, Roberts advised producers to hedge storage on May contracts and look for basis improvements.

“I have little doubt through April or May it will be profitable to store. If it’s a year like last year, it could be profitable to hold it all until the combines go to the fields again.”

Futures prices he foresees include January, $5.67; March, $5.62; May, $5.53; July, $5.49; September, $5.20 and November $5.05.

The wheat side. Decreased acreage in the United States and increases seen in other countries have brought out the strongest average prices in six to seven years for soft red winter wheat, Roberts said.

It has been difficult to buy wheat seed the past month, as acreage has been halved in the eastern Corn Belt over the past eight years.

“Buyers are worried about the wheat market and wondering how to get farmers to raise more. It’s easy – pay them,” Roberts said.

Despite the recent USDA announcement that China had three times more wheat in storage than previously calculated, it doesn’t matter for American wheat prices, the economist said.

“[China’s] ability hasn’t changed. They use manual labor and dry it on the roads in the sun. They have to stockpile more of it because they can’t move it,” like U.S. producers can, he said.

With few encouraging words on the horizon – including the description of Kansas and Colorado as “dust bowl” – Roberts said it might be more profitable to producers to store the 2003 wheat crop and sell corn right out of the combine.

Predicted futures prices for wheat are December, $3.91; March, $3.89; May, $3.65; July, $3.20; September, $3.24; and December 2003, $3.34.

Looking ahead. Marketing year 2003 will be marked with low yields, high prices and little to no LDP or counter-cyclical payments, Roberts said.

“If South America will ever have a bad year, this will be it,” he said, noting farmers on the continent, particularly in Brazil, held on and didn’t sell soybeans last spring but may not be so lucky this year as rains have already delayed planting.

(You can contact Andrea Myers at 1-800-837-3419, ext. 22, or by e-mail at


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