Wheat prices could sustain current levels if poor quality in soft red winter wheat translates into lower yields. But where's the business going to come from? Meanwhile, the corn and soybean markets are focused on demand and the weather.
In its June 11 crop production and supply and demand reports, USDA estimated U.S. wheat production at 1.626 billion bushels, which is up from last month's total of 1.563 billion bushels and up from last year's estimate of 1.143 billion bushels.
USDA estimated ending stocks for new crop wheat at 604 million bushels, up from last month's estimate of 511 million bushels and up from last year's 448 million bushels.
The wheat numbers “were a little above expectations, mostly coming from production gains in the hard red winter wheat category,” according to Greg Grow, a market analyst at R. J. O'Brien. “But there is continued talk that the heavy rains in some of the soft red winter wheat belt in the southern areas is starting to (cause) some quality problems.”
Stronger demand is needed to sustain current prices levels in wheat, according to Grow. “Without that, I look for a slow erosion in prices as harvest gets under way.”
“A big problem that wheat faces this year is the perception of how big the crop is,” added Scott Davis, senior market analyst, Pro Farmer of America. “A few years ago, this crop would not have seemed that big. But after last year's tiny crop, the perception that it's bigger is a problem for the bulls in the market.”
Another problem is that the United States is simply not getting the export business, a problem that could get worse with soft red winter wheat quality problems.
On the other hand, there could be rallies in the wheat market if the quality problems in soft red winter wheat turn into true yield reductions.
Corn and soybeans
USDA estimated new crop soybean ending stocks at 250 million bushels, up from last month's estimate of 245 million bushels and up from last year's 135 million bushels. Corn ending stocks for the coming year were estimated at 1.329 billion bushels, slightly higher than last month's 1.304 billion bushels and up from last year's 1.059 billion bushels.
Grow noted that a relatively tight world supply for corn and a tight domestic situation for soybeans “will create great opportunities for both speculators and hedgers. We are very dependent on weather for both corn and bean yield potential. Expect volatility to continue for now through the rest of summer.”
A 4-million-ton reduction in China's corn crop estimate for 2003-04 “could be a critical factor to watch this summer,” according to Davis. “There are crop problems with moisture stress emerging in parts of China which could slow Chinese exports.”
The SARS threat has also slowed Chinese corn exports recently and all of the above could let the United States gain a foothold in Asia, Davis said. “But without these factors, corn exports will continue to disappoint overall.”
In summary, world corn supplies are getting tighter, but as in wheat, the United States just isn't getting the business, according to Davis. “If buyers come to the United States, the price will respond. Otherwise the corn market has nowhere to go. U.S. crop conditions are favorable enough at this point that the market is just going to move sideways until we know how the crop is moving through pollination.”
USDA was very conservative in its U.S. export forecast for soybeans, noted Davis. “We will probably see that export forecast increase in July and August. Chinese imports continue to grow and they are consuming beans at a pace fast enough to offset the expansion we've seen in South American production.
On the other hand, USDA increased the Brazilian soybean crop production estimate again this month, “which was a bit of negative surprise.”
Demand for beans is certain to slow, which will make the soybean market “tough to read, very emotional,” Davis noted. Price volatility for soybeans “is going to surprise a lot of people on how wild the market will get.
“The corn market is in a race to find out whether or not there is any demand in the market,” he added. “The next 45 days will likely bring price pressure unless we have an unusual weather problem arrive.”
Grow noted that a 25-million-bushel decrease in U.S. corn exports was already priced into the market.