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Agrimarketing : January February 2008
January/February 2008 AgriMarketing 21 The elimination of the EU's 10% set aside provision and favorable weather heading into winter dor- mancy should produce a dramatic recovery in 2008 world wheat sup- plies. Wheat is not a bio crop, and a 15 to 20 MMTs rise in world wheat end stocks will cast July forward futures into a more bearish stance. In the absence of adverse weather, it's going to be difficult to be bullish wheat beyond the first quarter of 2008. Corn and oats look to hold the bullish luster in the last half of 2008. Declining new crop seeding and ongoing rising ethanol demand looks to support corn prices in a range of $4.00-5.25 until a new U.S. corn crop is pollinated. Longer term, corn prices have to secure additional planted acres from other crops, or the USDA will have to allow easier exit from the Conservation Reserve Program. Corn prices are likely to swing in a wide $1.50 price range until the U.S. and Chinese corn crops are safe from weather damage. OILSEEDS OUTLOOK by Doug Houghton, Brock Associates, Milwaukee, WI email@example.com Oilseed producers have plenty of rea- son to be optimistic about 2008, with prices for most oilseeds ending 2007 at historically high levels and unprece- dented world demand showing little sign of slowing. Strong demand from China and other developing nations should continue in 2008 and biodiesel pro- duction may divert more oilseeds from food use. "Beans in the teens" may finally become reality with the battle for U.S. acreage likely to intensify as USDA's March planting intentions survey nears. And any major crop problems in South America, the U.S. or Asian oil palm regions could send oilseed prices to unheard of levels. But this is not the time to be blindly bullish. The odds that signifi- cant long-term price highs will be made during the first half of 2008 appear to be high. The strong demand outlook is well known to the market. That's why prices are where they are. The market also seems to be strongly factoring in rapid demand growth past 2008 and a possible La Niña-caused crop problems in Argentina or in the U.S. Midwest. The big commodity fund presence in the futures markets must be watched very closely. At these price levels, the downside risk may soon start to look greater than the potential further gains. Thus, there is a grow- ing chance commodity funds will take their money off the table and look for a new game with better odds. A number of factors could help turn the tide for oilseeds markets in 2008, some more probable than oth- ers. Brazil's soybean crop, which starts the year in good condition, could exceed expectations. Increased input usage and improved seed genetics could mean another year of big yields in South America. The soybean market may not buy all that many acres in the heart of the Corn Belt due to strong corn yields, but high prices will pull in a large number of acres in the northern Plains, the southern Midwest and the Delta/Southeast. Expect record double-cropped soybean plantings. And we can't rule out the possibility China's economy will finally overheat after years of strong growth. If so, the resulting world- wide slowdown will directly impact oilseed demand. CORN OUTLOOK by Chip Flory, ProFarmer, Cedar Falls, IA firstname.lastname@example.org The game has changed in agri-mar- keters' favor. The cost threshold for your inputs to provide favorable eco- nomic returns is moving higher in the corn market. Growers trying to maxi- mize production of $4-plus corn on every acre they plant this spring will provide welcome opportunities for you to sell goods and services in 2008. Corn growers are very likely to plant more than 90 million acres of corn again this spring. You should expect those acres to be more con- centrated in the traditional corn growing areas of the Midwest. Wheat and soybeans are likely to steal corn acres in regions of the South and Plains that had expanded corn acres in 2007. As a result, it will be difficult for corn to surpass the number of acres planted last year. As of this writing, USDA remains under pressure to release CRP acres for 2008 crop production. U.S. farm and energy policy will try to balance our needs for corn with our needs for land to have other uses, but the fact of the matter is the World needs more corn right now.At current prices, we are on the verge of growing a $60 billion U.S. corn crop. That's a staggering num- ber, but here is the math: 85 million harvested grain acres (similar to 2007) with an average yield of 155 bushels (about trend line) = 13.2 bil- lion bushels. An average on-farm price of $4.50 on 13.2 billion bushels = $59.4 billion. By the way, we need a 13 billion bushel crop in 2008 to keep up with anticipated usage. This is not a pretty scenario for corn users, but tight supply could sustain prices above $5 throughout 2008. If that happens, remember that high prices will suppress demand --- resulting in lower prices eventually. If the 2008 corn crop looks ade- quate (big acres and good weather) and prices drift below $4, keep in mind that "$3 corn is not what it used to be." Expect a slowdown in capital investment across the Corn Belt if corn bids stay below $3.50. Mild resistance to higher input costs becomes stiff resistance in this scenario. This could happen later in 2008, but for now --- expect a banner year. COTTON OUTLOOK by Doug Harper, Brock Associates, Milwaukee, WI email@example.com The cotton market has an overriding concern as the 2008 growing season approaches. How many additional acres will be given up to the produc- (more on page 22) Houghton Flory
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