Feedgrain and Wheat Situation & Outlook

John D. AndersonMississippi 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 ChangeSep 15 562’0 -1’2Sep 16 532’2 -29’6Sep 17 554’0 +21’6Sep 18 527’2 -26’6Sep 19 542’2 +15’0

DEC08 Corn

DEC08 Corn

Crop Condition: Good + Excellent

Corn Balance Sheet2004/05 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

Price 2.06 2.00 3.04 4.205.00-6.00

Feedgrains Balance Sheet2004/05 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

Exports 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

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

57.8%

54.6%

49.9%

47.2%

41.1%

12.4%

14.2%

18.9%

23.4%

32.4%

12.8%

12.2%

12.2%

10.5%

10.6%

17.1%

18.9%

19.0%

18.9%

15.8%

0% 20% 40% 60% 80% 100%% of Total Corn Use

Mar

ket

ing

Yea

r

Feed & Residual Ethanol Other Industrial Exports

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 Sheet2004/05 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

Price 3.40 3.42 4.26 6.486.70-7.80

Wheat Stocks/Use

US Avg. April Fertilizer Prices

Source: USDA-NASS, Agricultural Prices, April.