Agri News, MN
11-20-07
Market signals more soybean acres are needed
Tuesday, November 20, 2007
By Jean Caspers-Simmet
Agri News staff writer
AMES, Iowa -- The market is signalling that more soybean acreage will be
needed next year and Iowa State University Extension grain marketing
economist Robert Wisner's supply and demand projections reinforce that.
"It is Important for farmers to look at their own operational costs and returns for
raising beans versus corn," said Wisner. "As a partial guide, I would use fall 2008
forward contracting prices. I would not view those as necessarily a forecast of
what's going to happen next falls but as an indication of prices that can be locked
in right now. I would encourage farmers to think seriously about locking in prices
for a portion of their crops for next fall. The returns are far above the average of
recent years."
Several factors could create downside potential in markets into next harvest
season, Wisner said.
Corn prices have been supported by an extremely tight world wheat supply and
record high world wheat prices at times this fall, Wisner said. That has shifted
considerable world wheat feed demand over to corn and boosted U.S. corn
exports sharply. With wheat prices in the $8 to $9 per bushel range, wheat is
much less competitive in overseas markets. Strong prices have encouraged a
sharp increase in wheat acreage in the United States and foreign areas. With
better growing conditions, wheat prices could be substantially lower next year
shifting some of corn export demand over to wheat.
Another caution is that ethanol returns are substantially weaker than they were at
this time a year ago, Wisner said. The pressure on prices is coming in large part
because the infrastructre for distributing and marketing ethanol outside the
Midwest has not kept pace with the double digit expansion in ethanol. A time lag
of 1 to 1.5 years will be needed for infrastructure to catch up with ethanol
production.
"The Midwest ethanol market appears to be approachign saturation point,"
Wisner said. "That means addtional ethanol production has to moved to the East
and West Coasts and the South. Most all of that has be moved by rail, and the
receiving areas are not geared up with trackage for receiving 100-car trains,
tanks for receiving and storing ethanol and blending facilities. Until the
infrastructure is developed it will be a restraint on ethanol profitability. That could
temper corn prices some."
Wisner expects to see combined U.S. and South American soybean production
up sharply because of high prices this fall. Some downside price pressure could
emerge next fall with a better than normal growing season in United States.
Farmers may want to look serioulsy look at pricing their fall 2008 harvest late this
year and on into winter, he said.
In looking at costs and returns for next year's crops, farmers should carefully
check fertilzier prices.
"All indiciations are that fertilzer and seed prices will up siginficantly," Wisner
said. "We're not only area of the world attempting to increase acreage. China is
attempting to shift more acreage into corn and also to sharply increase fertilizer
application rates per acre. The same trend is developing in the former Soviet
countries and in Brazil and Argentina. There are a number of forces globally that
are putting upward pressure on input prices. It will be very important in next few
months for farmers to look carefully at crop budgets to see how that's impacting
relative cost of corn versus soybeans."
Wisner expects a sharp increase in U.S. wheat acreage for the coming year. He
has heard reports of farmers growing wheat in areas where it has not been
traditionally raised.
"The biggest challenge with that is finding a wheat market," Wisner said. "In most
of Iowa, our major crops are corn and soybeans, and elevators not used to
dealing with wheat. Farmes should be sure they have a market before they plant
wheat."
Wisner said there is a ready wheat market in the Twin Cities, and if that is within
hauling distance that could be an outlet. If enough wheat is grown in a local area,
some elevators may decide to allocate storage and ship it to markets.
The high cost of crude oil nearing $100 per barrel is strngthening the role of
ethanol in expanding the fuel supply, Wisner said. There is considerable interest
in Congress in farm and energy bills in expanding economic incentives and
increasing mandates for biofuels.
Rising energy costs are increasing the cost of crop production not only through
diesel fuel but also in drying costs and in nitrogen fertilizer.
"What is happening with fuel costs has positive and negative impacts," Wisner
said. "The negative is rising crop production costs, but the postivie is that it
makes biofuels look more interesting to investors. For the short term, especially
2008, it is important farmers pencil through what rising fuel related costs are
doing to their cost produciton."