Grain prices surged higher following USDA's Jan. 11 crop production report estimating lower ending stocks for corn and beans and lower than expected wheat plantings.
Brian Hoops, president and senior marketing analyst, Midwest Market Solutions, speaking at the Minneapolis Grain Exchange January press briefing on the USDA report, said the higher prices could continue into the spring.
There were no big surprises from the previous month in USDA's estimate of crop size for corn or soybeans, noted Hoops.
USDA's final production number for the 2007 corn crop was 13.074 billion bushels. While that is the highest production number in history, “it is down from the previous estimates. We've been trending lower since the August crop, with each month giving us slightly lower production figures.”
Soybean production came in at 2.585 billion bushels, which was in line with trade estimates. “The figure was down slightly from November and like corn, the production number has trended down over the last several months.”
However, due to strong forecast demand, ending stocks for both crops “are very bullish,” Hoops said. “Corn ending stocks of 1.438 billion bushels is a huge decline from last month's 1.797 billion bushels. That's only 134 million bushels more than a year ago. We produced 2.535 billion more bushels in 2007 than in 2006, yet ending stocks increased only by 134 million bushels.
“It goes back to demand. We've seen food, feed and industrial use increase over last year. We're feeding more livestock, and inventory reports indicate supplies of livestock and poultry substantially over last year.”
Also driving corn prices higher are forecast corn exports of 2.45 billion bushels, the highest in 18 years. “We had another sale this morning (Jan. 9) of 120,000 metric tons of corn to an unknown destination and South Korea just purchased 296,000 metric tons. So we're seeing a big demand in this corn market, which has not done its job of rationing the ending stocks.”
On Jan. 11, March corn finished up 20 cents at $4.95, and December picked up 20 cents to finish at $5.13. The following Monday, March moved up 16.75 to finish at $5.11, while December moved up 17.25 to finish at $5.30.
Meanwhile ending stocks for soybeans at 175 million bushels “is one of the tightest numbers that we've had in the last five years. It is down 10 million bushels from last month. We have a demand trend for 2008 of 3 billion bushels, but we don't have a lot of ending stocks to carry us over. So I believe November 2008 soybeans will continue to move higher.
“We have to buy 6 million to 8 million more acres of soybeans to start rebuilding these ending stocks. We have to make up nearly 400 million bushels. Corn is also in a dogfight for acres, so prices for both corn and soybeans should move higher.”
“The million dollar question is how high must soybeans go to get the acreage it needs to supply demand,” Hoops said. “We're in uncharted waters, an unprecedented area in wheat and soybeans. Wheat went $2.50 above its all-time high. It wouldn't be unrealistic to see soybeans do the same type of thing. At $2.50 above the old $12.70 high, we're looking at over-$15 beans. That's possible given what the market has to accomplish this year.”
At the end of trading on Jan. 11, March beans settled 38.5 cents higher at $12.98 a bushel, while November settled up 50 cents, at $12.45. However, the following Monday, Jan. 14, beans just couldn't get into the teens, with March down 3.5 cents to $12.95 and November up 17 cents to $12.62.
Hoops noted that winter wheat seeding for 2008, at 46.6 million acres, “is up 4 percent from 2007, but lower than what the trade was expecting. It looks bullish for the trade.”
Hard red winter wheat acres, at 32.5 million acres, is down 1 percent from last year. Acreage of this class was down in almost every state except South Dakota and Montana. “We think dry weather has limited planting in some parts of the region.”
Increases came in the soft red winter wheat areas, where acreage increased about 21 percent over 2007.
“Estimated wheat carryout of 292 million bushels was a little more than the average trade guess, and about 12 million bushels above last month. It is still down substantially from a year ago. But most of the focus in the market is going to be on the new crop.”
On Jan. 11, March wheat finished up 26.75, at $9.09, while July wheat finished up 30, to $8.06. On the following Monday, March was up 5.75 to $9.15, while July was up 30 to $8.36.