Market opportunities for the 2009 corn crop and the 2009-2010 wheat harvest depend on factors as close to home as how much it rains in Iowa, as far off as how long it stays dry in Australia and as varied as how high or how low crude oil futures will move.
Blake Bennett, Texas AgriLife Extension economist, says overestimates of the 2009 wheat crop have moved prices up in recent weeks. Trouble with the Southwest winter wheat crop and problems with spring wheat planting support a price increase.
Texas and Oklahoma wheat production will be down as much as 50 percent from 2008. Kansas farmers are not as hard hit, but are still not expecting a bin buster, Bennett said during the North Texas Small Grains Field Day in Leonard, Texas.
“The Kansas crop is not good enough to overcome the losses in Texas and Oklahoma,” he said. Estimates put Oklahoma production at about 20 bushels per acre and about a 77 million-bushel crop. Texas wheat will make about 62 million bushels.
Crop conditions in mid-May showed Texas and Oklahoma wheat trending toward the low end of the scale, with much of the crop rated poor or very poor. Kansas was showing 53 percent of the crop in the good to excellent range.
For the 18 primary wheat producing states, 37 percent of the crop is rated good and 27 percent is fair.
“The Texas very poor rating increased since November,” Bennett said.
“The market is also concerned about spring wheat,” he said. “Planting is running behind schedule significantly — at least one week later than usual. The market is responding.”
He said the USDA supply and demand report also showed a smaller carryout than in the April report. “It’s down 9 million bushels. The 2008-2009 carryout is anticipated at 669 million bushels; the 2009-2010 carryout estimate is 637 million bushels. The trade estimated 683 million.”
Bennett said a price range of $4.70 to $5.70 is likely for next year. “The trade overestimated carryout for the next two years.”
He said concern for drought in Australia at planting time also may affect the market. Western Australia, where 40 percent of the country’s total wheat crop grows, is dry. “Australia is a big player and that may affect prices.”
He said the trend line for the wheat market is up. Bennett also said the market had recovered from a sharp drop in April, precipitated by an “over reaction to the swine flu scare.”
A $6 per bushel price will feel resistance, he said. “Anytime the market gets to whole numbers, we see resistance. If we get above $6 it may be hard to push down. But below it, it’s hard to push up.”
He also said that sharp movements in the market leave gaps, prices that are not covered by up and down movements. “The market doesn’t like uncovered prices and we see a lot of sell orders in those gaps.”
He said wet weather in the Midwest may affect corn prices. “Growers have not been able to get into the fields and production could be running into trouble.”
By May 10, only 43 percent of the U.S. corn crop had been planted. The typical 5-year average is 71 percent by that date.
That concern moved the market up in early May and Bennett said speculative money may be coming in. He said old crop sales improved as the hog market “firmed up. We could see a pull back, however, from profit taking.”
Bennett said weaker crude oil prices, equities markets and soybeans “could set the tone for corn markets. If crude oil strengthens, corn will follow. Corn will follow the fuel market closely.”
He said the combination of late planting and potential effect on total production, along with variability in fuels markets, could cause market volatility.
Supply and demand will play a usual role as well. The 2009 carryout, for instance, is now expected to be 1.1 billion bushels, down from an earlier estimate of 1.5 billion. Bennett said corn price range for 2009-2010 could be $3.70 to $4.50. “Prices respond to the lower carryout.”
An increased ethanol mandate also would encourage better corn prices. A recent finding that ethanol use results in a 16 percent environmental advantage over fossil fuels, if international land use is considered, may be a negative for the ethanol industry. Without that land use, which many observers consider misleading, the advantage is more than 60 percent.
Bennett said maintaining momentum in an upward corn market remains “a big question mark. If the pork industry improves and if we get more positive news about the economy and if beef demand comes back, we could see a positive effect on the corn market.”
He said milo will track the corn market, whichever direction it heads.