Feedgrain and Wheat Situation
& Outlook
John D. Anderson
Mississippi State University
Commodity Markets in the News
• Record high commodity prices leading to…
– … credit crunch for grain elevators and reduced
forward pricing against deferred contracts
– … proposed tighter limits on speculative trading
– … possible early out for some CRP land
– … discussion of partial waiver of RFS biofuel
mandates
– … export taxes in several countries (see, e.g.,
Argentina)
What’s behind all this?
• It depends – mostly on who you ask
• Plenty of suspects
– Wheat crop failures in 2006 and 2007
– Economic growth in India and China
– High crude oil prices
– Bioenergy production in developed countries
– Commodity market speculation
World Production of Grains
World Stocks/Use Ratio: Total Grains
Corn Highlights
• Corn prices began moving sharply higher in
Fall 2006
• In 2008, prices moved well past previous
record set in July 1996
• Futures prices reflect expectations of relatively
high prices as far out as contracts are traded
Weekly Chicago Corn (Cash)
CBOT Corn: September 22, 2008
Corn Highlights
• Corn prices began moving sharply higher in Fall 2006
• In 2008, prices moved well past previous record set in
July 1996
• Futures prices reflect expectations of high prices as far
out as contracts are traded
• Current economic uncertainty creating huge volatility
• Pullback from June highs reflects…
– … improving crop condition ratings
– … effect of outside markets (esp. crude oil, dollar)
– But longer term fundamentals are exceptionally strong
Corn Market Volatility: CZ8
Date
Close
Change
Sep 15
Sep 16
Sep 17
Sep 18
562’0
532’2
554’0
527’2
-1’2
-29’6
+21’6
-26’6
Sep 19
542’2
+15’0
DEC08 Corn
DEC08 Corn
Crop Condition: Good + Excellent
Corn Balance Sheet
2004/05
2005/06
2006/07
2007/08
2008/09
Planted Ac.
80.9
81.8
78.3
93.6
87.0
Harv. Acres
73.6
75.1
70.6
86.5
79.3
Yield
160.4
148.0
149.1
151.1
152.3
Prod.
11.807
11.114
10.535
13.074
12.072
Ethanol
1.323
1.603
2.117
3.000
4.100
Exports
1.818
2.147
2.125
2.425
2.000
Total Use
10.662
11.270
11.210
12.820
12.645
End. Stks.
2.114
1.967
1.304
1.576
1.018
2.06
2.00
3.04
Price
4.20 5.00-6.00
Feedgrains Balance Sheet
2004/05
2005/06
2006/07
2007/08
2008/09
Planted Ac.
97.0
96.4
92.5
109.1
101.9
Harv. Acres
86.0
85.9
80.1
98.4
90.8
Yield (MMT)
3.71
3.47
3.5
3.57
3.56
Prod.
319.2
298.6
279.9
350.9
323.5
Dom. Use
239.9
244.7
242.6
277.0
285.2
51.4
59.8
58.3
69.5
54.7
Total Use
291.3
304.5
300.9
346.5
339.9
End. Stks.
58.8
54.7
36.2
43.8
30.2
Exports
Corn Stocks/Use
Does the RFS Matter?
• RFS mandate has an enormous impact on
market participant expectations
– With respect not just to the level but also to the
stability of demand
– Because of mandates, corn demand from ethanol
sector should be less price responsive than other
sectors
• Effect of oil prices is also critically important
– High oil price supports corn use for ethanol
despite higher corn prices
RFS Mandate History
Corn Use Components
41.1%
32.4%
Marketing Year
47.2%
49.9%
54.6%
0%
20%
10.5%
18.9%
18.9%
12.2%
19.0%
12.2%
18.9%
12.4%
40%
15.8%
23.4%
14.2%
57.8%
10.6%
12.8%
60%
17.1%
80%
% of Total Corn Use
Feed & Residual
Ethanol
Other Industrial
Exports
100%
Corn Use: US Ethanol v. Foreign Feed
Two Models of Corn Demand
No Mandate
Mandate
RFS Mandate and Demand
Distribution of Corn P & Q
Price
Quantity
Summary
• High prices for corn
• High offtake of corn despite high prices
– Weak dollar
– Ethanol production
• A bit of slack showing up in world grain stocks,
but US corn balance sheet tighter in 2008/09
– Lower 2008 plantings
– And potential for late-season damage
• But corn fundamentals will likely be
overwhelmed by outside market influences
Wheat Highlights
• Declining world stocks in 2006/07 and 2007/08
due largely to production problems in key
production regions
• Soaring prices in winter 2008
• Larger production in 2008 increasing stocks,
decreasing prices
– But, strong fundamentals for corn and beans will
continue to support prices
• Weak basis, high production costs likely to reduce
US acreage this fall
Wheat Balance Sheet
2004/05
2005/06
2006/07
2007/08
2008/09
Planted Ac.
59.7
57.2
57.3
60.4
63.5
Harv. Acres
50.0
50.1
46.8
51.0
56.6
Yield
43.2
42.0
38.7
40.5
43.5
Prod.
2.158
2.105
1.812
2.067
2.462
Dom. Use
1.169
1.152
1.140
1.066
1.294
Exports
1.066
1.003
0.908
1.264
1.000
Total Use
2.235
2.155
2.049
2.330
2.294
End. Stks.
0.540
0.571
0.456
0.306
0.574
3.40
3.42
4.26
Price
6.48 6.70-7.80
Wheat Stocks/Use
US Avg. April Fertilizer Prices
Source: USDA-NASS, Agricultural Prices, April.