Can the outlook for grain and oilseed prices get any worse? Unfortunately, it can, a market analyst told producers attending the recent Market Outlook Conference in Tunica, Miss.
Bob Westmoreland, with Sparks Companies, noted that three years of drought haven't done much to whittle down ending stocks of U.S. commodities. And a long run of excellent corn and bean crops in South America haven't helped exports. Stir in the prospect that good weather in the United States this season could finally let loose the yield potential of biotech varieties and you have a dismal outlook for prices going into the 2001 growing season.
Westmoreland had few positive things to offer growers, other than they're going into the 2001 season with better sub-soil moisture overall and a more optimistic weather outlook than in 2000.
“It looks like we're going to have a good start although there will be some areas of late planting, particularly in the upper Midwest, and some chances of rain on wheat when we're trying to harvest,” he said. “There's also a good chance that moisture levels from August through October could be close to normal meaning we could have enough rain to finish out the crops.”
Here's a closer look at corn, soybeans, wheat and rice outlooks from Westmoreland:
Corn and sorghum
Optimism on prices has faded and for good reason, according to Westmoreland. “Stocks are not that burdensome, but since the 1996 farm bill, we don't have our stocks buried in loans, extended loans, reserves.
“This grain has to be privately owned, financed and stored. The market has shown an unwillingness to support this. At the end of the season, unless there is a fairly dramatic problem with the upcoming crop, this grain has had a tendency to try and come to market. That's more than the usage system wants to support and it is a burden on a very flat-price market.”
Westmoreland projects a 2001 corn crop of 9.7 billion bushels, on 77.5 million planted acres and a trend yield of 136.5 bushels. However, the yield trend, “is too heavily dependent on the weather of the last three years.” This weather has not allowed new biotech varieties to reach their potential, he said.
“That aside, the numbers imply that crop production would fall below demand. Even though we have weakness in the summer and fall, we could have sprightly prices on into the early months of 2002 under that scenario.
“On the other hand, if it rains in September and August in the Midwest, this country could produce a 142 bushel yield. Add that production to the carryover, and we would effectively prevent any subsequent rally going into 2002. The function of the market will not be to attract acres, but to build livestock feeding profitability around the world.”
The problem with the corn market begins and ends with large stocks, Westmoreland says. “In 1996, we had 400 million bushels and we ran out. That was $5 corn. When you have five times as much corn as then, the question is how low can it go.”
In addition, “the export side has not been so robust. We've geared our systems to move grain out of the Midwest at fairly rapid rates, but we've fallen below that for several years because of competition and now under use the system.”
Good news in the corn market seems to perpetually be a year or two away and usually involves China. According to Westmoreland, China will export less under the WTO agreement. “We expect them to ship moderately lower this year, from 10 million tons down to 6 million tons. Next year, we expect them to net break-even.”
In addition, industrial demand, “has been an outstanding,” according to Westmoreland. “The major driving force has been ethanol in fuel and it's expected to be a fairly steady growth area in the years ahead.”
On the downside, incidents of unapproved corn varieties finding their way into the export market cost the United States about 100 million bushels in corn demand from Asia, according to the analyst. Asians substituted U.S. corn with early shipments of Argentine corn and Chinese and Indian feed wheat.
Westmoreland says the nearby corn futures won't spend much time under $2.10 at trend yields. “But at 142 bushels and a continuing delay of China into the WTO, in September the nearby corn futures could be trading at $1.75.”
Westmoreland forecasts a bigger grain sorghum crop for 2001. “Trend yields are up, acreage is coming back. We're going to have sorghum to feed in the South and Southwest in the fall.”
“We have a particularly ugly balance sheet for soybeans,” Westmoreland said. “We're going to carryover about 340 million bushels this year. A 40-bushel yield this coming season, which I think is in the conservative range, gives us a 3-billion bushel crop. By the time we harvest our crop, we're going to have a big stockpile in South America still competing with us.”
The outlook for demand, at 2.7 billion bushels, is optimistic, given the large South American crop. But that level would result in ending stocks in 2002 of over 500 million bushels. “So the function of the soybean market is build demand, to build livestock profitability around the world, to get back those growth rates.”
With the prospect of carrying a large carryover into a large new crop, “this is the first time that I have seen models that would suggest soybeans trading at Chicago under $4.
“What does that mean to you? A great LDP. What does it mean to South America? They better already have sold. So I think that late spring rallies, or summer drought rallies are highly unlikely under this environment.”
Wheat and rice
There's a little more optimism in food grains, according to Westmoreland. “We had a bad wheat crop in the United States this past season, 2.2 billion bushels. Because of the weather, acreage was cut back in the Southwest and we have the lowest wheat acreage in this country since the early 1970s.”
The analyst is projecting a 2.1 billion to 2.17 billion bushel wheat crop in 2001. “We suspect Chicago wheat to be under pressure as we move into the early harvest period, dropping down to $2.30 to $2.25 as we move into the early summer. Thereafter, with stocks declining, at worst we should see a flat outlook and at best, a seasonal rally in wheat as we try to put wheat acres back in the fall.”
The rice market, “doesn't seem to be as negative as the soybean and corn markets, noted Westmoreland. “U.S. rice stocks will decline this year as well as next year under trend yields. The problem is not pricing from the U.S. side, but a very subdued world market with heavy exports from China, India and Pakistan.
“In 2002, we're more optimistic for U.S. exports and the world price structure. Where U.S. growers stand in relationship to that is what kind of weather we have. We produce some good rice yields in this country. That's the one thing that would flatten out this market.”