The Enid News and Eagle, Enid, OK

April 13, 2013

Markets face more uncertainty

By Rodney Jones, Extended Forecast
Enid News and Eagle

ENID, Okla. — Over the past few weeks, grain markets responded negatively to a surprisingly bearish USDA stocks report that indicated larger than anticipated ending stocks for most grain commodities, primarily due to demand weakness.

This week’s World Agricultural Supply and Demand Estimate report confirmed demand weakness. Changes to usage projections may continue to be a market driving factor, however, for the next several months I suspect major market movements will be triggered evolving information regarding new crop production prospects. The wheat market has been burdened by abundant old crop supplies, but has been supported by tremendous uncertainty regarding the production prospects for 2013. One challenge has been that production prospects for other grains (corn and soybeans) have been influencing the overall grain market complex and have been pulling the wheat market along for the ride.

The market will be struggling with a lot of production uncertainty for all the grains through the next several months. In a large area of the southern plains there is still a large degree of uncertainty regarding the number of acres that may be abandoned due to drought conditions from the fall and winter. There also is concern regarding the extent of freeze damage on the wheat crop. We know there were pockets of extensive damage further south, and are waiting to determine the extent of damage that may of resulted from the more recent cold snap.

In addition, there are uncertainties regarding the number of acres of spring wheat that will be planted in the northern plains region. Early intentions indicated plans to plant a fairly large number of acres, however, weather may change those intentions somewhat. Also, markets have factored in a huge number of acres of corn to be planted this spring, and that will be the case.

The market now will start to watch the conditions and timing of the spring planting progress. Producers in many areas of the corn belt would like to plant in late April into good conditions. If it is still too cold or too wet planting delays may begin to factor into corn production prospects.

If U.S. corn yields equal or exceed the long term trend, corn production would be the largest in history resulting in strong downward pressure on prices. U.S. corn yields have been disappointing for two years in a row. From an historical perspective it would be very unusual to have three low average yield crops in a row; however, if this scenario begins to appear likely new crop corn prices will lead an overall grain market rally. A similar argument can be made for the soybean complex. Long-term trend yields will result in a large crop, which will pressure prices somewhat, while a short crop scenario will be supportive of prices.

About the only relevant information the market will have to “chew” on regarding corn and soybeans in the next month or so will be planting conditions and timing. More relevant growing weather information will not come along until later in the summer. For wheat, very relevant crop condition and production prospect information will be garnering market attention over the next several weeks.

Information that suggests lower-than-anticipated wheat production prospects could allow the wheat market to separate itself somewhat from the other grain markets, and would provide some support for wheat prices regardless of what happens in the other grains. Monitor the OSUFarmManagement Facebook page for timely updates.

Jones is Oklahoma Cooperative Extension Service area agricultural economics specialist.