Corn & Seed/Oil Commodities

[mikey]

Weekly Outlook: Focus on Weather and Crop Size
US - Corn and soybean prices managed an impressive rally during the first half of July, writes Darrel Good, agricultural economist at the University of Illinois.



That rally was initiated by smaller than expected June inventories and smaller than expected corn acreage revealed in USDA's 30 June reports. The rally was supported by strength in wheat prices that reflected declining wheat crop prospects in a number of important production areas.

Strength in corn and soybean prices late last week reflected concerns about the potential impact of the forecast for widespread and lingering high temperatures across the US Updated forecasts for more widespread and abundant precipitation this week moderated some of last weeks' yield concerns. Most of the crop concern is centered on corn due to prospects for relative small stocks at the end of the current marketing year and prospects for a continuation of a high rate of consumption during the 2010-11 marketing year. Consumption next year is expected to be supported by increasing use of corn for ethanol production, although there is some concern about reaching the blend wall in early 2011. Most remain optimistic that the Environmental Protection Agency will approve a higher ethanol blend, at least for some vehicles, that would expand the potential market for mid-level blends. There is also concern that the $.45 per gallon blender's tax credit for ethanol which expires at the end of this year will not be renewed, or more likely, will be renewed at a lower rate. Current price relationships in the ethanol and gasoline markets suggest that a lower tax credit rate would not reduce the incentive for blending. The concern would be that the price relationships change so that a lower tax credit rate would reduce those incentives. A case might be made for a variable tax credit rate that reflects changing price relationships and blending economics.

The other sectors of the corn market are expected to experience stable consumption patterns. The USDA currently forecasts non-ethanol processing uses of corn during the year ahead at 1.36 billion bushels, only 20 million bushels above the forecast for this year. Feed and residual use is projected at 5.35 billion bushels, 175 million less than the inflated projection for the current year resulting from the small estimate of 1 June inventories. US corn exports during the year ahead are forecast at 1.95 billion bushels, equal to the forecast for the current year.

There is a fair amount of uncertainty about export demand for US corn. Through 15 July, the USDA reports cumulative export inspection during the current marketing year at 1.608 billion bushels. Through May, cumulative Census Bureau export estimates exceeded inspections by 77.7 million bushels. If that margin has been maintained, exports during the last 6.7 weeks of the year need to total 264 million bushels, an average of 39.4 million bushels per week, to reach the USDA projection of 1.95 billion bushels. Inspections over the 11 weeks ended July 15 averaged 40.8 million per week. It appears that shipments are on pace to reach the projection. Unshipped sales of US corn for delivery during the current marketing year stood at 373.8 million bushels on 8 July, well above that needed to reach the USDA projection. Export sales for delivery during the 2010-11 marketing year stood at a relatively small 101 million bushels as of July 8, including only 2.4 million bushels to China. Export sales for next year, however, could accelerate if world wheat production prospects continue to decline.

There is a little less concern about the US soybean crop even with small inventories due to prospects for reduced consumption of US soybeans during the year ahead and the 1.4 million acre increase in US planted acreage this year. With a trend yield in 2010, the USDA expects 2010-11 marketing year ending stocks of US soybeans to reach a four-year high of 360 million bushels. An average yield slightly below trend would still leave expected stocks at a relatively high level.

In general, expectations for the US average corn yield this year have declined slightly, but are still relatively high. The wide range of yield expectations reflects the differing assessments of the impact of weather conditions to date and uncertainty about upcoming weather. Record or near record June rainfall in much of the Midwest may have had a negative impact on yield potential, but that is not accepted by all analysts. Even more subtle is the likely net impact of July temperatures slightly above average this year compared to the record or near record low temperatures of 2009. The USDA will release the first forecast of yields based on surveys and field observations on 12 August. The price impact of that forecast could be significant.

[mikey]

Thailand faces severe cassava shortage
[26 July 2010] Thailand is facing a severe shortage of cassava as the production in 2010/2011 crop year is estimated to plummet sharply from last season, according to a recent crop survey by the Thai Tapioca Trade Association. Growing area for this crop has reduced to 7.3 million rais (1.17 million hectare) from 7.8 million rais (1.25 million hectare), decreasing cassava output for this crop to about 15 million tonnes from around 21 million tonnes. Businesses that use tapioca as raw material for feed will be affected by the situation, the association said.

[mikey]

Price of barley up
[10 August 2010] The price of barley, in the last six weeks, has more than doubled to €210 a tonne (USD 279), up 130% from €90 a tonne. Barley now is trading at par with milling wheat. This comes after the drought affecting Russia and Ukraine, and it may prompt the cost of meat and poultry to rise to about 15%. Barley production is also down in the European Union and Canada.

[mikey]

Wheat Prices Set to Remain High for a Decade
NETHERLANDS - High wheat prices are not a one-off, according to a senior Rabobank official.



Wheat prices will remain high for the next ten years, says Rabobank's Director of Commodities, Dirk Jan Kennes. The current price peak is not only down to the Russian drought, it signals a structural change in the market. The US could offer short-term solutions. But long-term the food industry must improve efficiency, or charge consumers more for bread, beer and meat.

Wheat prices have risen by more than 50 per cent since the end of June, topping EUR 200 per tonne, according to Rabobank. The immediate cause of the spike is the continuing drought in Russia, Ukraine and Kazakhstan, which is devastating crops. EU producers France and Germany are also bracing for poor harvests. Prices rose even further this week as President Putin announced a ban on grain exports from 15 August to the end of the year.

Demand rising
Mr Kennes said: "On the surface, this situation feels like the food crisis of 2007 and 2008. "Poor harvests are once again driving the price-spike. But global stock levels are much higher right now than at that time. So this time round, we should be able to cope better with the production declines."

For the first time since the 2008 food crisis, we are producing less wheat than we consume. Growing populations and rising prosperity are causing this growth in demand. Changing consumption patterns in countries like China and India mean more people are eating wheat-based products. And as people become more prosperous, they start to eat more meat.

Mr Kennes explained: "Not everyone makes the connection between meat and wheat. But grains are essential elements of animal feeds. For every kilogram of chicken you buy in the shop, you need two kilogrammes of animal feed."

Global stocks falling
Although stock levels are currently high, the world probably does need to deal with lower average stocks. "Tighter grain markets on the one hand, and a more liberal EU agricultural policy on the other will leave less room to buffer potential production shortages. So prices will fluctuate much more. Stocks are now around the same level as just before the food crisis in 2007. But if you adjust the figures for India and China, global stocks are lower," says Mr Kennes.

After the EU, China is the biggest wheat producer in the world. But, like India, it uses most of its harvest to feed its own enormous population. Self-sufficient countries that do not bring their product to market have a limited impact on the world price.

Shift in wheat production
In the last three years, wheat production has increased by 15 per cent, from 600 million tonnes in 2007 to 680 million tonnes in 2008 and 2009. The bulk of the extra wheat came from countries in the former Soviet Union and the EU, picking up the slack left by US farmers as they switched their wheat acreage to corn and soybeans. But as harvests fail in Europe, there may still be relief in sight from the US.

Mr Kennes explained: "Although wheat acreage has shrunk, we are expecting big export volumes in the US. This could meet demand and prevent further reduction of stocks. India currently holds strategic stocks of 14 million tonnes, in contrast to their normal level of eight million tonnes. So if the US harvest does disappoint, the solution may lie in the East."

Risk management for food industry
On the production side, it is not enough for farmers to bring new land into operation. They also need to improve their yields. This all brings higher costs, which in turn pushes up prices. If wheat price volatility stays at structural high levels, it will have a significant impact on margins and risk distribution in the food supply chain.

Mr Kennes concluded: "Companies in the food supply chain responded to the price volatility in 2007 and 2008 by taking positions on the futures markets and hedging their risks. They should still take these operational measures and keep a very close eye on the commodities markets, bearing in mind that timing is all-important. But they also need to consider strategic options such as consolidation. The industry must improve its operating efficiency to absorb the rise in cost prices. Otherwise, the cost of bread, beer and even meat, could rise in the shops."

[mikey]

How the Global Wheat Shortage May Impact the Pig Industry
Based on current price predictions, the UK pig industry will experience a return to negative returns from November this year, according to a briefing document from BPEX. Other countries are likely to be hit just as hard, either directly from the price rises in wheat, barley and soybeans or indirectly from competition for other feed ingredients.

 

Introduction
At present feed represents between 55 to 60 per cent of the total cost of production of pig meat for all European pig industries. Within the cost of feed the principal ingredients are the cereals (wheat and/or barley) and soybean meal, which can account for up to 80 per cent of the ration. Clearly, therefore, the cost of pig feed rations and the total cost of pig production is highly sensitive to changes in the raw material prices of these commodities on the world market.

As has been well-documented in recent weeks and days, wheat prices have risen at their fastest rate since 1973 with markets witnessing the biggest jump in July from £103 to £143 per tonne due to concerns of drought conditions throughout the major cereal-growing areas of Europe and Russia and the resultant impact on yields.

This short briefing note aims to quantify the impact of recent price rises on the cost of pig meat production and forecast future movements in commodity prices and how this may impact upon the pig meat supply chain.

Summary
Feed represents up to 60 per cent of the current costs of pig production of which the main ingredients are wheat, barley and soya. During July, global and domestic wheat prices increased almost 40 per cent and further quoted prices forecast further increases.

Based on current and forecast prices for wheat, barley and soya – which are the main ingredients in pig feed – it is anticipated that the cost of English pig production will rise from 137.2p per kg in June 2010 to 146.35 per kg in November 2010.

The impact of these increases in cost of production is that English pig producers will move into negative returns for every pig slaughtered subject to future movements in the DAPP.

This situation is not unique to the English pig industry. All European pig industries are faced with the same challenges from the global feed market and the impact on their profitability is identical, subject to their individual pig price movements in the near future.

Overview of Commodity Markets – Wheat, Barley and Soybeans
Wheat
At the start of 2010, the global wheat market was in a heavily supplied bearish state. With ending stocks for the '09/10 season estimated at near 200 million tonnes and a forecast third-highest harvest on record, the supply side dominated the market. However, the weather has yet again thrown a spanner in the works. With the worst drought for 130 years hitting Russian grain crops, the world has become very nervous in a short space of time about the availability of wheat from Russia and the Black Sea region. Information from the region is not particularly transparent and so rumour and conjecture on the impact of the heatwave on grain crops have been key market drivers. The nervousness in the market has been spurred on by increased investment fund activity and a weaker US dollar over the past month.

The main driver has been the European market with MATIF wheat in Paris up €57.50 per tonne over the past month, to close on 2 August at €207.25. UK prices have followed with new-crop LIFFE wheat futures for November 2010 gaining over £40 per tonne through July alone. Wheat futures prices for July 2011 delivery increased by 36 per cent since the start of June.

Wheat prices in the US hit near two-year highs recently, with CBOT wheat standing at $254.7 per tonne on 2 August, some $75 higher than a month earlier. The wheat prices have surged above the maize price in the US, with wheat now at a $106 per tonne premium above maize. As a result, this price spread makes wheat in the US less attractive into feed rations and there is the potential for feed wheat demand to lessen.


Barley
The barley market has very much followed the price surges in the wheat market over recent weeks. The concerns over the poorer-than-expected yields in Europe and the expected lower crops in the Black Sea region have prompted feed compounders across Europe to lobby the EU to release barley stocks from intervention to alleviate the expected lower supply. However, in mid-July, the EU announced that it had no plans to allow the release of barley intervention from stocks but that it would continue to monitor the situation.

The latest estimates of barley production in Europe are at 54.1 million tonnes, well down from 61.8 million tonnes produced a year ago. The main reason for the lower production is firstly a lower planted area from barley with gross margins looking poor in comparison to feed wheat and oilseed rape; and secondly, the heat-wave through June and July reducing the crops yield potential. Europe is still expected to carry in over 11 million tonnes of barley in commercial stocks.

Soybean meal
The soybean meal market has been supported by spill-over support from buoyant grain prices over recent weeks. The market has also seen support from tight supplies in North America and a strong demand for raw bean imports into China. Soybean meal prices have been on an upward trend since mid-March, hitting highs of $350 per tonne in early July. The UK market, and subsequent prices, will be very much influenced by these global factors. soybean meal prices in the UK have gained from £275 per tonne in early March to £300 in late July. However, the strengthening of UK sterling against the US dollar over recent weeks will have the effect of making US dollar denominated imports into the UK cheaper in sterling terms and as such will partly negate the price rises seen in US markets.

Looking forward, the soybean market is expecting a record US crop this year, with the 2010 harvest currently estimated at between 91 and 93 million tonnes. The US has seen very beneficial growing conditions this season and the crop is currently forming yield with very little weather concerns. The soybean market now awaits the final size of this US crop to then gauge the relative supply availabilities through 2010/11. However, the global supply and demand within the soybean market remains robust. As in 2010/11, global soybean production is estimated at 251 million tonnes (259 million tonnes in 2009/10); demand is seen 12 million tonnes higher than the season prior at 247.6 million tonnes, with Chinese import demand seen at one-fifth of world production at 50 million tonnes. So, the potential record bean crop in the US gains more significance as demand is forecast to increase in 2010/11.


Current and Forecast Cost of Production

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"Even if producer prices maintain their current value, the industry is forecast to be making a loss by the final quarter of 2010." 

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The cost of production in the pig industry improved during 2009 mainly due to reduced input costs of feed and improvements in physical performance. During 2009, the average cost of pig production was 127.9p per kilo, a seven per cent reduction compared with a year earlier. Despite efficiencies in terms of breeding herd prolificacy and growth rates, the industry has been exposed to higher energy, labour and building costs. Following a prolonged period of negative margins for the industry, returns achieved during 2009 allowed the opportunity for greater investment in new buildings.

However, costs of production remain dominated by feed. Costs of production have increased during 2010 and in July the estimated cost of production was 137p per kg.

During 2009, feed accounted for 52 per cent of production costs, a reduction from 56 per cent a year earlier. However, in July 2010, feed was estimated to account for 57 per cent of total pig production costs.

As new feed contracts are being negotiated, there is concern that the industry will once again become loss-making as, at the time of writing, futures prices continue to rise at a time where the producer price has fallen for five consecutive weeks, following a seasonal trend. Taking into account the futures prices and the likely knock-on effect to feed rations, the return to producers is important in terms of maintaining a sustainable business. Even if producer prices maintain their current value, the industry is forecast to be making a loss by the final quarter of 2010.

This current situation is not limited to the UK industry. The grain market is global and other European pig producing nations are experiencing a concentrated impact of increased input costs. EU member states have not experienced similar profitability that the UK has experienced over the last 18 months. As a result, the sustainability of many European pig producers will come into question if higher feed prices are realised.


Conclusions
Based on current and forecast prices for wheat, barley and soya which are the main ingredients in pig feed, it is anticipated that the cost of English pig production will rise from 137.2p per kg in June 2010 to 146.35p per kg in November 2010.

The impact of these increases in cost of production is that English pig producers will move into negative returns for every pig slaughtered subject to future movements in the DAPP.

This situation is not unique to the English pig industry. All European pig industries are faced with the same challenges from the global feed market and the impact on their profitability is identical, subject to their individual pig price movements in the near future.

August 2010

[mikey]

Japan plants more feed rice
[12 August 2010] Producing rice for animal feed is attracting farmers' interest in Japan recently. Soaring prices of imported feeds plus the fact that it is easy to grow and generates a higher yield has made it attractive. The production increase also has been boosted by a subsidy system introduced this fiscal year by the  government to improve the nation's self-sufficiency in food through efficient use of rice paddies. Under the system, a farmer is granted JPY 80,000 (USD 940) per one-tenth of a hectare for growing rice for animal consumption or other crops. According to the Agriculture, Forestry and Fisheries Ministry, 1,611 hectares were planted with feed rice in 2008, a sharp increase from 292 hectares in 2007. The figure was expected to reach 4,129 hectares in 2009.

[mikey]

USDA predicts higher corn and soy prices
[13 August 2010] Despite the USDA's forecast of record corn and soybean crops this year, prices are epected to rise on global demand. The higher price is being driven by lower foreign production which will more than offset the higher U.S. output.The average corn prices for the 2010/11 marketing year beginning September is at USD 3.50 - 4.10 per bushel, up five cents on each end of the range from a month ago. US soybean prices for the same period is expected to be in a range of USD 8.50 - 10.00 per bushel, a 40-cent increase on each end of the range.

[mikey]

Friday, August 13, 2010
CME: USDA Expects Largest Average Corn Yield
US - Steve Meyer and Len Steiner comment on the latest Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports in their Daily Livestock Report (DLR) for 13 August 2010.



USDA’S monthly Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, released this morning, contained forecast yields and crop sizes for corn and soybeans that were all higher than last month’s USDA estimates and higher than the averages of analysts pre-report estimates — and corn, soybean and soybean meal prices all closed higher for the day. That relationship is not what one would expect if the pre-report estimates are providing an accurate picture of the information that is “in the market” before the report.

We are loathe to believe — and are not at all suggesting — that analysts would provide numbers that are not what the indeed expect to happen but in this instance it appears those numbers were not representative of “market” expectations. The pre-report estimates usually do a better job of representing market sentiment — but not this time. The table below contains the estimates published in Wednesday’s DLR with the actual figures added in the shaded column. 2010-crop corn futures closed 8-1/4 to 10-3/4 cents/bushel higher today while 2010- crop soybean futures rose 9-1/2 to 13-1/2 cents/bushel.


USDA is now expecting the largest average national corn yield and largest US corn crop in history at 165 bu./acre and 13.365 billion bushels, respectively. Those eclipse last years’ records of 164.7 bu./acre and 13.110 billion bushels. USDA’s forecast for this year’s soybean yield (44.0 bu./acre) matches last year’s record while forecast soybean production of 3.433 billion bushels would, like the corn crop, break last year’s record, 3.359 billion bushels.

All of those records, however, are of little solace to livestock and poultry growers. The reason is apparent from the chart and the supply and utilisation (S&U) table for corn. While the 2010 corn crop may well be record large, USDA changed its estimates of three corn uses for the current crop year with the net effect of reducing projected 2010 carryout stocks to1.426 billion bushels. That reduction plus increases in Non-ethanol food, seed and industrial (FSI) usage (30 million bushels) and exports (100 million bushels) in the coming crop year pushed projected 2011 carryout stocks to 1.312 billion bushels, their lowest level since 2006. Perhaps more important is this fact: 1.326 billion bushels of corn just ain’t what it used to be!! That level of year-end stocks represents just 9.7 per cent of total 2010-2011 usage and would be the fourth smallest year-end stocks-to-use ratio since 1970 and over 2 per cent smaller than the ratio in 2006, the year that marked the launch of the biofuels era for corn prices. USDA raised both ends of its forecast range for the season- average corn price by 10 cents/bushel. The range is now $3.50 to $4.10/bu.

 


USDA’s forecasts for record soybean yields and crops were also offset by increases in usage estimates for both this and next crop years. Larger exports and crushings pushed already-tight 2010 year-end stocks to an even tighter 160 million bushels. That is still larger than last year’s level but not by much — 4.8 per cent S/U ratio this year vs. 4.5 per cent last year. About the only factor keeping near-term soybean and soybean meal futures from moving sharply higher on these tight year-end stocks is the better prospect this year of an at-least timely harvest. The impact of last year’s tight supplies was exacerbated by late planting and cool summer temperatures that delayed soybean maturity. This year’s soybean planting pace was not much better than that of 2009 but the growing season has provided more heat units and, in most areas, ample moisture that has 8 per cent more acres blooming and 19 per cent more acres setting pods this year versus last as of August 8. USDA added 40 cents/bu. to both ends of its forecast range for soybeans to put it at $8.50 to $10.00. They also added $10/ton to both ends of the soybean meal range, putting it at $250 to $290/ton — pricey but still much lower than last year’s average of $310/ton.


While not having much DIRECT impact on US producers, world wheat supplies and prices remain a key driver of these grain markets. USDA lowered projected world wheat production by 15.3 million tonnes to 645.3 million. Russia (-8.0), Kazakhstan (-2.5), Ukraine (-3.0)and EU-27 (-4.3) accounted for all of the decrease. The decline in world wheat output drove projected world wheat trade down by 5.7 million tonnes. US wheat exports were increased by 200 million bushels (5.4 million tonnes), up 20 per cent from July.

[mikey]

Friday, August 13, 2010 US Stands to Pick Up Wheat Forfeited by Russia
US - The United States stands to gain a good share of the wheat export market that Russia is forfeiting due to the Russian government’s decision to halt grain exports until the end of the year, according to John Anderson, an economist with the American Farm Bureau Federation.



The Agriculture Department yesterday released its August World Agricultural Supply and Demand Estimates or WASDE report. In the report, USDA projected a huge drop in Russian wheat exports for the 2010-2011 marketing year: 3 million metric tons, compared to 18.5 million metric tons, in the 2009-2010 marketing year. Russia decided to exit the grain export market this year because of a serious drought that is reducing crop prospects.

“This is a jaw dropping reduction in exports for Russia,” Dr Anderson said. “And because the United States is expecting a good wheat crop with good stock levels, our farmers stand to take up a big share of wheat exports that would have gone to Russia.”

US all wheat production is estimated at 2.26 billion bushels, up 2 per cent from the July forecast and up 2 per cent from 2009, according to the latest WASDE report. USDA is also projecting the highest US wheat yield ever at 46.9 bushels per acre, up 1 bushel per acre from July and up 2.5 bushels per acre from last year.

The US stands to pick up export business because of expectations for a good crop and large wheat stocks, at just under 1 billion bushels.

“The United States should pick up almost half of the wheat exports that would have gone to Russia,” Dr Anderson said. “We have wheat when the other major exporters don’t have as much wheat.”

Dr Anderson said it is important to note that global wheat stocks are still strong.

“We don’t have to worry about a global shortage of wheat right now, despite the difficulties in the Russian wheat market,” he said. “Overall, global wheat stocks aren’t all that tight, and the winter wheat crops in Argentina and Australia, who are big producers and exporters in the Southern Hemisphere, are looking pretty good so far. Futures have already retreated quite a bit from the highs set on the day of the Russian export ban announcement. Markets will begin to calm down over the next few days as everyone comes to terms with these adjustments.”

In addition to the import news impacting the wheat crop, Dr Anderson said the August WASDE report is important for the corn crop, and it is being closely studied by the market.

“The big news is USDA is forecasting a record corn crop, a record yield and record use,” Dr Anderson said.

In addition to more corn going in to ethanol production, USDA is forecasting more corn to go in the export market, to make up for the lost Russian grain exports.

“Wheat is used as a feedstock for livestock in many countries, and because not as much wheat will be available for export, many countries will turn to corn to meet the needs,” Dr Anderson said.

[mikey]

Chinese buyers show strong interest in US soybeans
[25 August 2010] Chinese soybean buyers have maintained strong interest in back-month shipment of US soybeans due to positive crushing margins, said the state-run think tank China National Grain and Oils Information Center (CNGOIC).  American soybeans scheduled to ship in December was quoted at USD 477/tonnes or CNY 3,810/tonne C&F, providing an anticipated margin of CNY 166/tonne from hedging on the domestic market, CNGOIC said in its weekly report. The record high June and July soy imports have driven up domestic inventory to 6.8 million tonnes, an increase of 3.3 million tonnes from the same period in 2009.

[mikey]

Philippine corn production to drop 11.7% this year
[31 August 2010] Philippine corn production will go down 11.7% this year, government projections show. A report by the Bureau of Agricultural Statistics says that corn output will only reach 6.22 million tonnes for 2010 compared with 7.03 million tonnes last year. For the first half of the year, corn production was only 2.42 million tonnes, down by 25% from the same period last year due to lower yields and a decrease in harvested area.

[mikey]

San Miguel corn program seen to hike corn production
[6 September 2010] Corn production in Eastern Visayas is expected to get a boost with the implementation of San Miguel Corporation (SMC)’s corn assemblers program. The program, a partnership between SMC, assemblers and corn farmers, has seen a 10% hike in the region’s corn output. Under the program, assemblers are to provide seeds and fertiliser to corn farmers and upon harvest, farmers are to pay the inputs with corn. The remaining corn yield will be bought by the assemblers, from whom SMC will consequently source the corn.

[mikey]

Russia's Grain Export Ban Extended to 2011
RUSSIA - Russian President Vladimir Putin has extended his country's export ban on grain until at least the end of 2011, prompting further increases in wheat prices and fresh concerns about the impact on food prices.


Mr Putin said he could only consider lifting the export ban after next year's crop has been harvested and there is more clarity on grain levels.

Wheat prices have now risen by 50 per cent since the beginning of July.

Senior economist for the National Farmers Union of England and Wales, Phil Bicknell, said: "Although wheat prices have risen sharply over recent weeks, it's critical to remember that it's just one cost involved in producing and distributing foods. Any changes in retail price of products like bread tend to be relatively weak in comparison to the farmgate wheat price. We can also expect a time lag effect before rising raw material prices trickle down to the retail level.

"The bigger concern has to be rising wheat costs for animal feed. It is questionable to what extent these rising production costs will impact on farmgate prices. If the supply chain doesn't recognise higher feed prices, in the short term at least, rising production costs are more likely to result in tighter margins for farmers than increased farmgate prices."

Russia introduced the export prohibition on grain and flour on 15 August, following a devastating drought that destroyed around a quarter of the harvest.

NFU combinable crops board chairman, Ian Backhouse, said then that the decision emphasised the need to maintain productive agriculture at home.

[mikey]

Weekly Outlook: Soybean Prices Remain Strong Too
US - Much of the attention in the crop markets in recent weeks has been focused on wheat and corn, writes Darrel Good, agricultural economist at the University of Illinois.



The wheat market has been dominated by the shortfall in production in Russia and the potential for a draw down in world wheat stocks. The corn market has been driven by strong domestic and world demand and by recent concerns about the size of the US harvest.

Soybean prices have traded in a wide range over the past two months, but fundamental developments have been less dramatic than in the wheat and corn markets. Over the next month, three USDA reports will add more clarity to the supply side of the soybean market. The first of those is the September 10 Crop Production report which will provide a new forecast of the size of the 2010 US harvest. A change in the forecast of harvested acreage is not expected, so the focus will be on the yield forecast. The USDA’s August Crop Production report forecast the US average yield at 44 bushels, equal to last year’s record and about 1.2 bushels above the calculated trend yield for 2010. Above average temperatures in many areas during August may have reduced yield potential, particularly in areas that also experienced below average precipitation during the month. For the most part, expectations are that the US average yield potential has not been reduced enough to alter the prospects for a record large harvest.

The second report is the 30 September Grain Stocks report which will reveal the level of old crop soybean stocks on 1 September, the beginning of the 2010-11 marketing year. Based on available data, it appears that soybean exports during the 2009-10 marketing year that ended on August 31 exceeded the USDA projection of 1.47 billion bushels. Cumulative export inspections through 31 August were reported at 1.46 billion bushels. From September 2009 through June 2010, cumulative exports as estimated by the Census Bureau exceeded inspections by 44 million bushels. If that margin continued through August, marketing year exports would have totaled 1.504 billion bushels.

In contrast, the 2009-10 marketing year domestic crush may fall just short of the USDA projection of 1.75 billion bushels. The crush during August needed to be 7 million bushels larger than during August 2009 to reach that projection. Monthly crush was below year ago levels from April through June and exceeded the year ago crush in July by only 300,000 bushels. On the surface, it appears that the inventory of soybeans on 1 September 2010 may have been smaller than the projection of 160 million bushels. However, the September stocks report has a reputation for containing some surprises and on occasion has resulted in a revision in the estimated size of the previous harvest.

The third report to provide supply information will be the USDA’s 8 October Crop Production report. In addition to providing a new forecast of yields, that report will also reflect administrative acreage information, primarily certified planted acreage data from the Farm Service Agency.

Prospects for export demand for the 2010 US crop will depend heavily on the strength of Chinese demand and the size of the 2011 South American crop. Currently, the USDA projects that China will import 1.91 billion bushels from all sources during the 2010-11 marketing year, up from 1.82 billion during the year just ended. While the 2011 South American crop is expected to be smaller than the huge 2010 crop, large inventories of the 2010 crop will keep supplies large and perhaps allow South America to capture more of the Chinese market. However, US export sales for the 2010-11 marketing year have started very strong. As of 26 August, the USDA reported sales for delivery during the current marketing year at 562.7 million bushels. New crop sales a year ago totaled 516.1 million bushels. Nearly 60 per cent of current outstanding sales are to China. Progress of the South American crop will become very important over the next few months as the developing LaNina weather pattern becomes important for the Southern Hemisphere.

Soybean futures prices remain above $10.00, resulting in cash prices at or above the upper end of the USDA’s projected range for the marketing year average price. Relatively high prices and a small carry in the futures market make harvest sales attractive for a portion of the crop.

[mikey]

USDA raises corn price forecast
[13 September 2010] The USDA has raised its average corn price forecast to a range of USD 4.00-4.80 per bushel from USD 3.50-4.10 for the 2010/11 marketing year that began Sept. 1.The higher price forecasts came as it lowered its forecasts for U.S. corn production by 2% and lowered its corn ending stocks estimate based on expected lower yields and higher corn exports.Even though the corn crop, now predicted at 13.2 billion bushels, would still be a record, corn stocks as a percentage of total use could be the lowest since the 1995/96 crop year, USDA predicted in its World Supply and Demand Estimates and Crop Production reports.