Farm Management Newsletter

Quarterly Publication of Ohio State University Extension

Spring 2002

Grain Marketing Outlook

By Matthew Roberts

January's USDA reports provided positive news to the soybean market. Harvested acres and yields were both revised, the net effect is a 30 million bushel decrease in last year's harvest. Exports, though weaker recently, are still at record levels. The large transactions in December prompted a 10 million bushel increase in projected exports for this year. These two factors combine to reduce the domestic stocks to use ratios to 10% from 11.6% in December.

In November and December, soybean prices remained under pressure from the threat of a record South American harvest. These worries offset much of the effects of the record export pace. Reports of continued dryness in the Rio Grande de Sul (RGS) have begun to mitigate these concerns. Recent reports by the RGS state agricultural agency are signaling that drought related losses may occur in the state, but their current harvest estimates are 5.85-7.56 million bushels vs. 7.1 million bushels last year. Also note that these reports do nothing to endanger the projections of a record Brazilian harvest this springthe January USDA report revised the estimates of the Brazilian crop upwards by 1 million tonnes from the December report, for a 10% increase over last year.

Argentina's default on its foreign debt has also provided support to the soybean market. The continuing uncertainty about the future among Argentine citizens has sharply reduced trade, both domestic and international, as local currency is shunned for the safety of physical stores of value. There is little reason to believe that these conditions will be long-lived. Argentina needs foreign currency desperately and agricultural exports are that country's most reliable export good. Further, any support offered by the withdrawal of Argentinian supplies will end with the new South American harvest.

Although the news for soybean prices has been more encouraging since New Year's Day, the overall outlook is still questionable. The best evidence for this viewpoint is that the U.S. soybean carryout is projected to be 10%, which is somewhat below average. The U.S. carryout has been revised downwards by 3% since the November reports. American soybean exports have enjoyed a record year. Argentina, a major exporter, has temporarily left the market. But prices are still in the $4.35-$4.55 range and new crop futures are only a dime higher.

As with soybeans, the USDA report revised harvested acres and yields, decreasing the estimated harvest from 9.546 billion bushels to 9.507 billion bushels. While the new reports also reflect the weak exports thus far, increases in feed, ethanol and HFCS demand combine to leave the total domestic use only slightly lower. The projected carryout is now 30 million bushels lower than in December.

As in soybeans, corn prices have also been helped by the dry weather in RGS. Although RGS is relatively less important in the global corn market than in soybeans, the dry weather has already begun to affect the corn crop. The Argentine economic crisis has also been supportive of nearby corn prices, as exporters hold stocks as long as possible to avoid owning local currency. Further, the January USDA report also revises the Argentine crop down by one million tonnes.

In sum, the outlook for corn prices is not favorable. Although domestic demand has been robust, the weak export markets have kept price movements contained. However, the current stocks to use ratio is low enough that weather worries will be very significant going forward, both for the remainder of the South American crop and the early stages of the U.S. crop. And while nearby prices are the primary beneficiaries of the Argentinian situation, the real attention should be toward new crop futures prices, which fell from $2.48 to $2.32 in December. For the time being, the biggest factor in corn prices is likely to be the strength in nearby soybean prices.