dr. robert wisner: grain outlook 3/15/06. brazil – mid-feb. 2006

Iowa State University Extension

Dr. Robert Wisner: Grain Outlook Dr. Robert Wisner: Grain Outlook 3/15/063/15/06

Brazil – mid-Feb. 2006

19431943--5050 19591959

Tree in Tree in ParanaParana, Brazil (No. 2 soybean state), Brazil (No. 2 soybean state)Dates are approximate

Key Corn Variables for 2006-2010

• Fertilizer costs & crop rotations

• Ethanol trends – very positive

• Bird flu?

• China corn exports?

• Weather: U.S. & World?

Gap: $6.20

May 2006 Soybeans

Nov. 2006 Soybeans

May 2006 Corn

Gaps: $2.338 & $2.448 (Sept.& Aug. ’05)

Offer Contracts

December 2006 Corn

Price Objectives: Gaps: June ’04: $2.665, $2.64,High of $2.69 On June 1, 2004.

Offer Contracts

Monthly CRB Index

Feed Grain OutlookFeed Grain Outlook

• Large U.S. supplies

• Gradual strength in W. Corn Belt Basis & corn price into planting season

• Stronger recovery in drought areas & near ethanol plants

• 1.3 billion bushel reserve tempers possible ’06 yield problems

• Wheat concerns

• Tightening supply in ’08-’10

World Supply Changes Vs. Last Year

• Soybeans +6.6%

–U.S. +2%

• Wheat +1%

• Feed Grain -1.0%

–U.S. Corn +3%

Monthly Natural Gas Futures

Mar. ’06 Natural Gas Futures 53% drop from high

13% ofU.S. WheatTX.-Ok.

World stocks down 5% in ‘06: USDA

Sac

Linn

Lee

Ida

Tama

Clay Kosuth

Jasper

Lyon

Page

StoryrJones

Fayette

Adair

Bentonn

Wapello

Pocahontas

Osceola

Jefferson

Audubon

Washington

BuenaVista

BlackHawk

Appanoose

CerroGordo

VanBuren

Mucatine

Dickenson

DesMoines

Winnebago

Montgomery

Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned, 3/20/06

PoweshiekPolk

BooneGreeneCarrollCrawford

Plymouth

O’Brien

Woodbury

Monona

Harrison Shelby

Wright Franklin

Floyd Chickasaw

Webster Hardin

Louisa

Emmet

Palo Alto

Hancock

Worth Mitchell HowardWinneshiek Allamakee

BremerButler

HamiltonGrundy

Buchanan

Delaware

Dubuque

Jackson

Clintonn

Guthrie Dallas

Johnson

Marshall

Pottawattamie

Mills

Fremont

Madison

Warren Marion Mahaska

Keokuk

Adams Union Clarke Lucas Monroe

Taylor Ringgold

Cherokee

Calhoun

Decatur Wayne Davis

Henry

Scott

Humboldt

Clayton

Cedar

Sioux

Cass

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Current & planned Iowa Corn Processing Plants, Normal Iowa Current & planned Iowa Corn Processing Plants, Normal Iowa corn production, & supplies available to ship out of statecorn production, & supplies available to ship out of state

Mil. bu. available to ship out of state is from normal production afterlarge carryover stocks have been used – provided corn acreage

remains at 2005 level. The market is likely to buy more corn acresIn future years.

Proj. Proj. ’03 ’08 I ’08 II 115 10 -19

Proj. Proj. ’03 ’08 I ’08 II167 123 105

Proj. Proj. ’03 ’08 I ’08 II254 138 112

Proj. Proj. ’03 ’08 I ’08 II207 114 91

Proj. Proj. ’03 ’08 I ’08 II178 155 147

Proj. Proj. ’03 ’08 I ’08 II- 248 -296 -343

Proj. Proj. ’03 ’08 I ’08 II102 106 106 Proj. Proj.

’03 ’08 I ’08 II51 55 55

Proj. Proj. ’03 ’08 I ’08 II-24 -35 -49

Est. Corn Available for Export, 2003 and Proj. 2008, Mil. Bu.

Iowa Proj. Proj. ’03 ’08 I ’08 II803 370 205 Key Assumption: Corn acres @ 2004 level

67

90

125

86

117

-171 27

106

71 -53286

-344

63

?

Iowa Corn Acres Projected from Non-soy Sources in 2010

• To corn from oats, hay 0.2 Mil. A.

• CRP land: 0.8 out of 1.2 mil. A. expire in 2005-09 going to corn/soybean rotation (50% to corn = 0.4 mil. A.)

• Yield potential on this land: 80% of state Avg.

Total Iowa Acreage & Crop Rotations: Constant Corn Exports

• Total corn-SB acreage:• -- 2001 Corn 11.7 mil. A., SB 11.0 • -- Current, Corn 12.5 mil. A., SB 10.0

– 2010, Corn: 15.9 million acres– Soybeans: 7.8 million acres

• Iowa crop rotations: – Average in 2001: 48.5% soybeans, 51.5%

corn– Average in 2005: 44% soybeans, 56% corn– Projected average by 2010: 33%

soybeans, 67% corn

Total Iowa Acreage & Crop Rotations: China Imports Corn

• Total corn-SB acreage, 2010:– Corn: 16.7 million acres– Soybeans: 6.9 million acres

• Iowa crop rotations: – Average in 2001: 48.5% soybeans, 51.5%

corn– Average in 2005: 44% soybeans, 56% corn– Projected average by 2010: 29.2%

soybeans, 70.8% corn

What Could Alter the Projected Acreage Pattern?

• Accelerated Growth in Corn Yields• Some Ethanol Projects Put on Hold (not

in sight currently)• More CRP or Hay Acres Going to Corn• Iowa Losing Corn Export Share

(What states will make up difference?)• Ethanol production from biomass, sugar,

or imports• Plants not operating at full capacity• Reduced Livestock feeding

Cumulative Corn Export Sales 3/02/06

• Japan +9% 453• Africa -11% 140• Taiwan +25% 124 • Other Asia +34% 134• W. Hemisphere +8% 424• Unknown +109% 51 Total +9% 1,276

Mil. Bu.

Potential U.S. DGS demand by 20Potential U.S. DGS demand by 2012

COF @ 15% of ration 5.30 mil. T.

Dairy @ 18% of ration 5.52 mil. T.

Hogs @10% of ration 4.48 mil. T.

Total 15.30 mil.T.

Potential productionPotential production 32.5 Mil. T.

Soybean Outlook Soybean Outlook

Large U.S. SB crop but < 2004

S. America ’05 crop underestimated?

Current good conditions in S. America

Projected drop in Brazil/Argent. Soy Acres but ‘06 crop up 330 mil. Bu.

Next 4-8 years: more DGS competionNext 4-8 years: more DGS competion

Biodiesel Biodiesel

Asian Soy Rust & bird flu?Asian Soy Rust & bird flu?

Includes 05-06 projections

Cumulative U.S. Soybean Export Sales 3/02/06 vs. yr. ago

• China -20% 319 mil. Bu.• Africa +12% 24 • EU -58% 65• Japan -4% 77• Taiwan +27% 48• Other Asia -24% 72• W. Hemisphere -1% 106 • Unknown -56% 16 Total -22% 740

SBM +1%; SBO -35%

Key Developments to Watch

• Bird Flu

• S. America: rust, weather, acres

• Index funds

• U.S. $

• Soy Diesel

Prices declined in 71% of the years & rose in 31% of the years.

-.25

Revenue Insurance is An Important Companion Tool for

Marketing• Not a substitute for marketing• Helps take advantage of attractive

prices when they are available• Helps deal with risk of over-selling a

crop not yet harvested• History says best pricing opportunities

often (but not always) occur well before harvest

Insurance costs, Blackhawk county: Corn: APH $4.01, CRC $8.28, SB $3.15 & $5.74http://www.farmdoc.uiuc.edu/cropins/insurance/2006/premium_table_2006.asp

http://www.farmdoc.uiuc.edu/cropins/insurance/2006/premium_table_2006.asp

Crop Insurance Comparisons 2006 Corn Soybeans

Historical yld.

150 bu./A. Net Indemnity Pmt.

45 bu./A. Net Indemnity Pmt.

APH Price 2.00/bu. $5.15 APH Prem. $4.88/bu. Wapello co.,

IA $3.87 Wapello co., IA

CRC Price $2.59 $6.18 CRC Prem. $9.64/bu. Wapello co.,

IA $6.77 Wapello co., IA

% Insured 75% 75% Harv. Yield 80 bu./A. 33 bu./A. Harv. Fut. Price I

$2.15/bu.

CRC APH $109.74 $60.12

$5.45/bu.

CRC APH $21.96 -$0.01

Harv. Fut. Price II

$3.00/bu.

CRC APH $87.86 $60.12

$6.45/Bu.

CRC APH -$1.93 -$0.01

Marketing Considerations

• Offer Contracts: an important Mktg. tool

• Old-crop corn: July futures @ $.20 above March, Sept. $.27 above March

• Basis likely stronger in April-early July

• Creates potential profit from farm storage

• Cash bids: Mallard, 49 Under for current delivery; 45 Under for June-July delivery

• New-Generation Grain Contracts

Marketing Considerations

• Old-crop beans: July futures @ $. 195 above March, Sept. $.175 above March

• Basis likely stronger in April-July

• Creates modest potential profit from farm storage

• Cash bids:

• Mallard, 51 Under for current delivery;

• July delivery bids, 55 Under

• Oct. delivery: corn 47 under, SB 50 under

Nov. Soybeans: History as a guide for offer contracts ‘95-05

Price Number of years Percent of years $7.20 4/11 36 7.00 5/11 45 6.80 7/11 64 6.60 7/11 64 6.40 8/11 73 6.20 8/11 73 6.00 9/11 82 5.80 10/11 91 5.60 11/11 100 5.40 11/11 100 5.20 11/11 100

Based on trades over life of November futuresHistory is no guarantee of future performance

Corn: History as a guide for offer contracts ‘95-05 Price Number of years Percent of years $3.20 3/11 27 3.10 4/11 36 3.00 7/11 64 2.90 7/11 64 2.80 7/11 64 2.70 8/11 73 2.60 9/11 82 2.50 10/11 91 2.40 11/11 100 2.30 11/11 100

Based on trades over life of December futuresHistory is no guarantee of future performance

http://www.econ.iastate.edu/faculty/wisner/

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Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Stanley R. Johnson, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa.