Strong market outlooks
Rationing is occurring with the U.S. wheat supply, the same could happen in the future with the country's corn supply, and the need for more corn and wheat acres gives the soybean market long-term upside. Those are themes heard from analysts during a CBOT press briefing, following a bullish USDA report on Thursday.
Not only does there appear to be support for nearby markets, from the sounds of it, the long-term outlook is positive, even for soybeans.
It's well known the corn and wheat markets are much higher now than at the start of the year. But, to sit and listen to analysts talk about future prices, very few can see downward trends.
For instance, the USDA lowered the corn crop estimate for 2006-2007 from 11.14 billion bushels to 10.9 billion, and the average yield from 154.7 to 153.5. But the bigger news, looking forward, is that USDA estimates 2006-2007 corn ending stocks at 996 million bushels. Anytime ending stocks dip below 1.0 billion bushels, the markets get nervous about supply.
That rule-of-thumb was declared well before any talk about huge ethanol demands.
On Thursday, USDA lowered 2006 corn-harvested acres by 800,000 to 71.0 million acres. Most analysts on the CBOT briefing agreed the U.S. would need 4.5 million more acres next year to meet demand (mainly for ethanol). A month ago, experts were calling for 3.0 million more corn acres.
With this bullish talk, analysts were mixed on how high corn prices could go. Though a price range of $3.00-$3.20 per bushel was talked about, some analysts on the CBOT briefing agreed that farmers will hold onto their crop for even higher prices considering the small chance of any loan deficiency payment this year.
Meanwhile, there is no end in sight for the strong wheat market, at least until the world knows how the Australian wheat-growing season is going to finish, analysts said.
On Thursday, The USDA significantly cut Australia's wheat production to 11 million metric tons, nearly halving the September estimate of 19.5 million tons.
Some large scale Australia producers say if no rain falls in the next month, the crop will get even worse, Jim Bower, President of Bower, Trading, Inc., said. "The Australians will not, and I repeat will not give up their poultry and livestock herd. So, the dynamics of this wheat situation is going to remain very volatile."
If Australia's crop falls too short, the country may have to input feed ingredients for its livestock.
Perhaps the supply/demand picture for corn and wheat was summed up best by Don Roose, U.S. Commodities. "The tight supplies we were talking about last month, are now tighter."
Meanwhile, end-users (feed mills, processors, and other commercial buyers) are believed to be short supply, according to the CBOT briefing analysts.
"Sourcing grain from producers will be tough this year, because of no LDP. Producers will be stronger holders of their crop," Bower said.