There is troubling news behind a 30-million bushel decline in U.S. soybean ending stocks and increased wheat trade prospects.

In its December supply/demand estimate, USDA increased U.S. exports 25 million bushels, meal exports by 200 tons and crush by 5 million bushels. While that's a positive for the marketplace, much of the increase in meal export demand could be headed to the European Union, where the link between mad cow disease (MCD) and Creutzfeld-Jacob dementia (CJD) in humans is a huge issue.

There is now strong evidence that MCD does indeed cause CJD, which is leading to increased bans of bone meal by the EU.

U.S. wheat export prospects could also rise on this news, as well as on recent adverse weather in the EU. "The ban directly increased our wheat exports here and around the world," said Don Roose, a market analyst with U.S. Commodities, speaking at a recent press briefing at the Chicago Board of Trade.

Because of weaker demand for soybean oil, there are expectations that the spread between soybean's meal and oil components will widen. However, there is also news that beef tallow, fat extracted from the processing of beef,may also be discarded due to MCD, "which could provide some support under the oil market."

Argentina soybean crop The size of Argentine soybean crop, which came in very high in USDA's estimates, has to be tempered with adverse weather in the region, said James Rooney, analyst with Rooney and Co., also present at the CBOT briefing. "The weather in Argentina has been suspect. The re-occurrence of a La Nina there could cause some problems."

According to Roose, final production figures for U.S. soybeans, which USDA will release in January, "could come down 30 million to 50 million bushels. That's going to make our stocks-to-use ratio tight in the United States and that's going to put upside potential into the marketplace, not counting potential problems in South America. I think we've got a soybean market that's going to get a little more exciting as we move down the road.

"In U.S. corn, the January production number could come down 90 million to 150 million bushels. New crop corn is out at a big premium to old crop and I think it's justified. We're going to need to buy some acres in the spring on corn. I think that's going to be a big issue, particularly when you look at the high energy costs and the costs of anhydrous ammonia. That's going to support acres switching from corn to soybeans.

"The wheat market is very positive," he added. "It just can't seem to find support. Our stocks-to-use ratio is now at 18.4 percent in the world. That's lower than the ratio we were trading in 1995-96 when we spiked up to over $7. So wheat, structurally, is positive."

"No one has been more wrong than I on the wheat market the last six to seven months," added Rooney. "But I'm still bullish. If we don't eventually trade wheat at $3.75, I'll run across the state of Kansas."